Waiting for the recovery in the US

By Christophe Blot

As with the economic performance of all the industrialized countries, economic activity fell off sharply in the second quarter of 2020 across the Atlantic before rebounding just as sharply the following quarter. The management of the crisis in the US is largely in the hands of the different States, and the election of Joe Biden should not change this framework since he declared on November 19 that he would not order a national lockdown. However, the health situation is continuing to deteriorate, with more than 200,000 new Covid-19 cases per day on average since the beginning of December. As a result, many States are adopting more restrictive prophylactic measures, although without returning to a lockdown like the one in the Spring. This situation could dampen economic prospects for the end of the year and also for the start of the mandate of the new President elected in November. Above all, it makes it even more necessary to implement a new recovery plan, which was delayed by the election.

As in the euro zone, recovery in the US kicked off as soon as the lockdown was lifted. GDP grew by 7.4% in the third quarter after falling by 9% in the previous quarter. Compared with the level of activity at the end of 2019, the economic downturn amounted to 3.5 points, versus 4.4 points in the euro zone. The labour market situation also improved rapidly, with the unemployment rate falling by 8 points, according to data from the Bureau of Labor Statistics for November, from its April peak of 14.7%. These results are the logical consequence of the lifting of restrictions but also of the large-scale stimulus plans approved in March and April, which have massively absorbed the loss of income for households and to a lesser extent for US companies (see here). However, the upturn in consumption is still being dampened by some ongoing restrictions, particularly in sectors with strong social interactions, where spending is still nearly 25% lower than it was in the fourth quarter of 2019 (Figure 1). As for the consumption of goods, it has been much less affected by the crisis and is down only 12% from its pre-crisis level for durable goods and 4.4% for non-durable goods. Nevertheless, most of these support measures have come to an end, and as of this writing the discussions that began in late summer in Congress have not yet led to an agreement between Republicans and Democrats. Despite the rebound, the health impact of the pandemic and the economic consequences of the lockdown on the labour market require a discretionary policy in a country where the automatic stabilizers are generally considered to be weaker[1]. New support measures will be all the more necessary as a further tightening of restrictions is looming and the recovery seem to be running out of steam. The initial consumption figures for the month of October point to a fall in the consumption of services, and employment also stabilized in November, remaining well below its level at the end of 2019.

However, after the setback of the discussions in Congress, it will now be necessary to wait until the first quarter of 2021 for a new support plan to be approved and for a possible reorientation of US fiscal policy after Joe Biden’s victory. In the Autumn, the Democrats proposed a 2 trillion dollar (9.5 GDP points) package, almost as much as the 2.4 trillion dollar (10.6 GDP points) package adopted in March-April 2020[2]. The aid would, among other things, support the purchasing power of the unemployed through an additional federal payment. Although unemployment is much lower than in the second quarter, it remains above its pre-crisis level and is now characterized by an increase in long-term unemployment for which there is generally no compensation. In November, the share of those who had been unemployed for at least 27 weeks was 37 per cent (or 3.9 million people, Figure 2), and the median duration of unemployment had risen from 9 weeks at the end of 2019 to almost 19 weeks in November 2020. In addition, States whose tax revenues have decreased with the crisis could benefit from a federal transfer, thereby avoiding spending cuts[3].

However, despite the end of the suspense over the outcome of the presidential elections, the political and economic uncertainty has not been completely resolved. Indeed, it will not be known until early January whether the Democrats will also have a majority in Congress. They have certainly kept the House of Representatives, but it will be necessary to wait until the beginning of January for the Senate, with a ballot planned in Georgia that will determine the political colour of the last two seats [4]. Both seats are now held by Republican senators. However, Joe Biden won Georgia by 0.2 points against Donald Trump, the first victory in the State for a Democratic candidate since 1992. With both State-wide senatorial elections to be contested directly, the results are likely to be close.  If one of the Democratic candidates is defeated, Joe Biden will be forced to contend with the opposition. But, as Paul Krugman points out, the Republicans are generally more inclined, once in opposition, to promote austerity. This is reflected in the uncertainty indicators of Bloom, Baker and Davies, whose economic policy uncertainty rose in November (Figure 3). This uncertainty is certainly lower than in the Spring but remains higher than that observed between 2016 and 2019. During this period, growth could weaken, and then a strong recovery is likely to be followed by more subdued growth, which will have repercussions on the labour market. Regardless of the outcome, a plan will likely be approved in the first quarter of 2021, but its adoption could take longer if it is conditional on an agreement between Republicans and Democrats in Congress. However, this could be lengthy given the urgency of the health and social crisis, and could plunge a significant proportion of the most vulnerable into poverty.

Source : Baker, Bloom & Davis. https://www.policyuncertainty.com/index.html


[1] See for example Dolls, M., Fuest, C. & Peichl, A., 2012, “Automatic stabilizers and economic crisis: US vs. Europe”, Journal of Public Economics, 96(3-4), pp. 279-294.

[2] By comparison, the European programmes are weaker, ranging from 2.6 GDP points for France to 7.2 points for the UK.

[3] Note that the States generally have fiscal rules limiting their capacity to run a deficit.

[4] Of the 100 seats in the Senate, the Republicans already hold 50. In the event of a tie between the two parties, it is the voice of the Vice-President-elect Kamala Harris that will decide between them. A single victory in Georgia would therefore allow the Republicans to retain the majority.

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The COVID-19 crisis and the US labour market: Rising inequality and precariousness in perspective

By Christophe Blot

In the United States as in France, the COVID-19 crisis has led to numerous measures restricting economic activities intended to limit the spread of the virus. The result will be a fall in GDP, which is already showing up in figures for the first quarter of 2020, and which will be much steeper in the second quarter. In a country noted for its weak employment protection, this unprecedented recession is quickly having repercussions on the labour market, as reflected in the rise in the unemployment rate from a low point of 3.5% in February to 14.7% in April, a level not seen since 1948. As Bruno Ducoudré and Pierre Madec have recently demonstrated in the case of France, the current crisis in the United States should also result in heightened inequalities and insecurity. And the shock will be all the greater in the US since the social safety net is less extensive there.

Continue reading “The COVID-19 crisis and the US labour market: Rising inequality and precariousness in perspective”
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What can we learn from the Finnish experiment with a universal income?

By Guillaume Allègre

Between 2017 and 2018, Finland conducted an experiment with universal income that gave rise to significant media coverage. 2,000 unemployed people receiving the basic unemployment benefit (560 euros per month) received the same amount in the form of unconditional income, which could be combined with income from work for the duration of the experiment (2 years, not renewable). On 6 May 2020, the final report evaluating the experiment was published (here is a summary of the results). The evaluators concluded that the experimental universal income had moderate positive effects on employment and positive effects on economic security and mental health. According to the final report, on average individuals in the treatment group worked approximately 6 additional working days (they worked 78 days). They experienced significantly less mental stress, depression and loneliness, and their cognitive functioning was perceived as better. Life satisfaction was also significantly higher. The results of the experiment therefore seem to argue in favour of a universal income. But is it really possible to draw lessons from the experiment with a view to generalizing the system? In 2018, I wrote that experimenting with universal income was “impossible“. Does the Finnish experience contradict this claim? It turns out that it is indeed difficult to draw lessons.

Continue reading “What can we learn from the Finnish experiment with a universal income?”
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European unemployment insurance

By Léo Aparisi de Lannoy and Xavier Ragot

The return of growth cannot eradicate the memory of how the crisis was mismanaged at the European level economically, but also socially and politically. The divergences between euro area countries in unemployment rates, current account balances and public debts are at levels unprecedented for decades. New steps in European governance must aim for greater economic efficiency in reducing unemployment and inequalities while explaining and justifying the financial and political importance of these measures in order to render them compatible with national policy choices. The establishment of a European unemployment insurance meets these criteria. Continue reading “European unemployment insurance”

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Beyond the unemployment rate. An international comparison since the crisis

By Bruno Ducoudré and Pierre Madec

According to figures from the French statistics institute (INSEE) published on 12 May 2017, non-agricultural commercial employment in France increased (+0.3%) in the first quarter of 2017 for the eighth consecutive quarter. Employment rose by 198,300 in one year. Despite the improvement on the jobs front experienced since 2015, the impact of the crisis is still lingering. Continue reading “Beyond the unemployment rate. An international comparison since the crisis”

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What is the initial assessment of Germany’s minimum wage?

By Odile Chagny (IRES) and Sabine Le Bayon

A year and a half after introducing a statutory minimum wage, the German Commission in charge of adjusting it every two years decided on 28 June to raise it by 4%. On 1 January 2017, the minimum will thus rise from 8.50 to 8.84 euros per hour. This note offers an initial assessment of the implementation of the minimum wage in Germany. We point out that the minimum wage has had some of the positive effects that were expected, helping to reduce wage disparities between the old Länder (former West Germany) and the new Länder (former East Germany), and between more skilled and less skilled workers. Continue reading “What is the initial assessment of Germany’s minimum wage?”

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Unemployment: beyond the (good) figures from France’s job centre

Analysis and Forecasting Department (France team)

The 60,000 person decline in March for the number of people registered in Category A at France’s Pôle emploi job centre is exceptional. One has to go back to September 2000 to find a fall of this magnitude. There is some natural volatility in the monthly statistics for job seekers, but the fact remains that the trajectory has changed noticeably. In the last year, the number registered in Category A at the job centre rose by 17,000. A year earlier, from March 2014 to March 2015, the increase was 164,000. Better yet, over the last six months the number registered fell by 19,000. Continue reading “Unemployment: beyond the (good) figures from France’s job centre”

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Matteo Renzi’s Jobs Act: A very guarded optimism

By Céline Antonin

At a time when the subject of labour market reform has aroused passionate debate in France, Italy is drawing some initial lessons from the reform it introduced a year ago. It should be noted that the labour market reform, dubbed the Jobs Act, had been one of Matteo Renzi’s campaign promises. The Italian labour market has indeed been suffering from chronic weaknesses, including segmentation, a duality between employees with and without social protection, high youth unemployment, and a mismatch between costs and labour productivity. Renzi’s reform takes a social-liberal approach, advocating flexicurity, with the introduction of a new permanent employment contract with graduated protection, lower social charges on companies, and better compensation and support for the unemployed. Although the initial assessment is surely positive in terms of both unemployment and job creation, there’s no cause for hasty triumphalism: the reform has been implemented in especially favourable circumstances, marked by a return of growth, an accommodative policy mix, and a stagnating work force. Continue reading “Matteo Renzi’s Jobs Act: A very guarded optimism”

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Unemployment: an ambiguous fall, but an unambiguous rise in long-term jobless

Analysis and Forecasting Department (France team)

The unemployment figures for the month of January 2016 published by France’s Pôle Emploi job centre show a fall of 27,900 in the number of job seekers who are not working (category A), which follows an increase recorded in the month of December (+15,800). While this fall might seem encouraging (a decline of this magnitude has not been seen since 2007), it must be qualified. First, recent changes in administrative practices made by Pôle Emploi [1] have resulted in an abnormal increase in exits from the jobless rolls due to failures to update (239,000, against a monthly average of 207,000 in 2015). Second, the high volatility of the monthly figures in recent months is a sign of a labour market in which job creation is insufficient to reduce unemployment on a sustainable basis. Continue reading “Unemployment: an ambiguous fall, but an unambiguous rise in long-term jobless”

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2015: An eighth year of rising unemployment in France

Department of Analysis and Forecasting (France Team)

Since June 2015, the number of job seekers at the end of the month (the number of “DEFM”, in French) in Category A registered with Pôle Emploi has swung from month to month, rising and falling. This high volatility, which reflects a sluggish labour market in which there is insufficient job creation to make a long-term reduction in unemployment, is directly related to the sluggish growth in the French economy overall. So after a relatively favourable November 2015 (15,000 DEFM fewer in category A), December once again saw an increase in the number of unemployed (+15,800), offsetting the previous month’s fall. In addition, for the first time since May 2015, all age groups experienced an increase in the number of category A DEFM in December. Continue reading “2015: An eighth year of rising unemployment in France”

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