By Rachel Lipson, Jess Northend and Jenna Albezreh
Introduction
In the midst of the global economic disruption induced by the COVID-19 pandemic, our team at the Malcolm Wiener Center for Social Policy monitored the policy approaches of different countries as they navigated this unprecedented crisis. As we tracked real-time updates of countries’ efforts to support dislocated and furloughed workers, we pulled out the core set of tools that have been deployed across national borders, accounting for both the existing employment infrastructure and differing political realities.
For live updates on cross-national COVID employment policy responses, check out the Project on Workforce's tracker.
Some countries have started to plan and announce what the transition from crisis response to medium-term policies should look like, as public budgets tighten and the public health demands of the first wave subside. However, the duration and pace of change looks different across the globe. For instance, in the UK, the government has announced reductions in the amount of salary covered by the state subsidy from 80% to 60% between July and October, as well as lower salary caps for eligibility (from £2600/month to £1875/month). Germany has extended increases in payment under their existing short-time allowance all the way through December 2020; whereas Canada’s extension currently goes through the end of August, and Ireland’s extension is due to expire in mid-August. While Australia originally had announced its wage subsidy scheme would operate through the end of September, the government recently announced it is re-evaluating this decision given the lessened impact of COVID-19 to date and will announce changes on July 23.
Policy Tools
Employer Wage Subsidies Across the countries we surveyed, the common criteria shared by these policies was that employers must keep their employees on the payroll in order to be eligible for the subsidies. While some countries (U.K., France, South Africa) at least initially required the employees to be furloughed (and therefore not working); others allowed employees to continue in their normal roles, with the government covering a large portion of their paycheck (Ireland, Denmark, New Zealand).
Unlike general business support measures, which tend to target grants at small businesses specifically, most countries with employer subsidy schemes have made the schemes eligible for all employers, irrespective of size. In most countries, employers register or apply for the programs through central government websites. Payments are typically delivered to the employers through lump sum direct deposits to company accounts. In some countries, funds are paid as advances (Netherlands); in others, a refund occurs with payroll each week (Ireland); and in others, the government delivers a reimbursement for wages already paid once a month (Australia). Implementation time has varied - whereas New Zealand aims for first payments to be delivered no later than five working days after time when applications are approved, the Netherlands states that companies will receive payments within 2 to 4 weeks from application. Governments have also varied in their decisions to conduct pre- or post-review of eligibility and required documentation. There appears to be a trade-off between speed and addressing employers’ cash flow needs (which would favor post-review and audit) and public perceptions of corruption (which would encourage countries to place more hurdles to establish that companies truly need the funds).
Direct Cash Transfer Almost overnight, coronavirus has brought the idea of universal basic income into the mainstream as a policy tool to fight the crisis. Countries have viewed direct cash payments to citizens as one means to deploy much-needed capital into the economy as quickly as possible and boost personal / household incomes. Some countries - like Japan and the US - are offering support on a near-universal basis. Japan is giving cash handouts of ¥100,000 (equivalent to US $930) to every individual in the country. The US is offering a one-off payment of $1200 from the IRS for those earning below $75,000. By contrast, the Canadian Government is targeting direct cash transfers at low-income essential workers. CAN $3billion has been put aside for the fund, with each province / territory holding responsibility for deciding which workers are eligible, and the level of support they should receive.
Tax Relief Most developed countries have adopted tax relief measures as an early-stage intervention to help with employer cash flow constraints. Countries have introduced a range of tax measures to deal with the crisis, with changes to Corporate Tax and VAT, and Income Tax deferment amongst the most commonly tweaked measures. Some nations - including Canada and Norway - are already reducing tax rates, or withdrawing tax obligations. In Norway VAT has been cut in half. A number of other nations have also given firms the option to defer tax payments. In France, companies can postpone payment of corporate income tax, payroll taxes and property taxes, with similar schemes also in place in the Netherlands, Norway and Sweden. A number of countries have made tax changes contingent on firms experiencing a reduction in revenue. For example, in Japan, individuals cannot defer the tax unless there has been a 20% decrease in the taxpayer’s revenue for the same period in the prior year. Similarly, in Canada, employers who qualify for the Canada Emergency Wage Subsidy (CEWS) scheme can claim refunds for a range of employment taxes, but only if firms have suffered a requisite drop in revenues in recent months.
General Business Support Amongst the countries surveyed a number have offered additional support for firms - most often through grant models. In many of these, grants have been made available for SMEs who have suffered a loss in revenue, with Ireland requiring a 25% loss, Denmark a 40% loss, and France and Japan requiring at least a 50% loss of revenue. The duration for such grant programs to remain in place appears to be flexible, as the crisis evolves, as evidenced by Denmark already extending its deadline by 2 months.
Unemployment Insurance Unemployment insurance has been a key mechanism for support for many of the countries surveyed. However, countries differ in how unemployment support interacts with other measures that preserve existing employment relationships. Some countries, like the UK and Germany, have introduced broader relief packages, including furloughs, designed to make it unnecessary for employees to take up unemployment insurance. Others, like the US, have looked to their unemployment system as the main channel for much of their COVID relief package. Many countries we looked at have loosened the restrictions for claiming unemployment. The Australian "JobSeeker Payments" scheme has been extended to include sole traders, the self-employed and casual or contract workers whose income has been reduced, and those who are caring for someone affected by COVID-19. In addition, the ‘mutual obligation’ requirement - which requires people to look for work - has been cancelled. In the US, independent contractors and self-employed persons who are unemployed because of the pandemic are also eligible to claim.
Business Lending Many of the countries surveyed have announced loan packages for small businesses through the crisis. In the Netherlands businesses with fewer than 250 employees will be able to access loans of up to €1.5m. In Norway and Denmark the state is guaranteeing 90 and 70 percent of loans, respectively. In the UK the government announced plans to stand behind commercial loans of up to £50,000 pounds ($62,000) to small firms. Businesses will have no interest or repayments for the next 12 months. Meanwhile in the US the Payment Protection Plan (PPP) enables small businesses to get loans of 2.5 times their average annual payroll cost, and have those loans forgiven if they spend at least 75 percent of those funds on payroll within eight weeks. The scheme has proved highly popular, though there have been significant delays in getting funding to businesses. In some nations firms can only apply for public lending when they’ve sustained a loss in turnover. In Sweden and Denmark firms are required to sustain at least a 30 percent drop in revenue before being able to access government-sponsored lending.
Human Capital / Active Labor Market Policies To date, few countries have introduced expansive active human capital programs. Those that have are largely focusing on three key areas: 1) Subsidized apprenticeships and vocational training for “critical industries”; 2) workforce councils to monitor and plan for recovery, by industry; 3) skill development programs for the unemployed and those who have been laid off. New Zealand and Norway currently have the most active labor market policies in place. We’ll continue to monitor this theme closely.
Policy Definitions
Employer wage subsidies: Covers all payments made directly to employers, to reimburse them - either in whole or in part - for an individual’s wages. Eligibility periods differ between countries.
Tax relief: Covers tax deferrals and reductions in tax rates.
Direct cash transfer: Includes cash payments made directly by governments to citizens - including those currently employed.
General business support: Grants paid directly to employers, often targeted at small businesses specifically.
Unemployment insurance: Covers federal / national payments to individuals who are out of work. In some instances, this includes support for independent contractors and the self-employed who have lost work as a result of the virus.
Business lending: Includes state guarantees and eligibility requirements for government-backed lending.
Human capital / active labor market policies: Includes government programs to drive retraining, including for those in hard-hit industries, subsidized apprenticeships for those working in ‘critical industries’ and workforce planning councils.