Alexandre Afonso, Leiden University

Written for The Future is Blue Newsletter

The corona-crisis and the measures to slow the spread of the virus have led governments to put their economies in an “induced coma”. A large proportion of workers are either asked to work from home, or to put their economic activity on hold. The contraction in both demand and supply demands massive government intervention to support companies and workers. In Southern Europe, the crisis has revealed the fragilities of systems of income protection, but it could also constitute an opportunity to close longstanding gaps in social safety nets.

Southern European economies are the ones that will likely be the most negatively affected by the corona crisis. The European commission’s economic forecast for 2020 projects a decline of -9.5% of GDP in Italy, -9.7% in Greece, -9.4% in Spain and -6.8% in Portugal. In contrast, the projection for Germany is -6.5% and -5.5% for Austria. Northern Europe has a higher proportion of skilled, service-based jobs that are easier to perform from home (e.g business consultants and financial advisers), while jobs in Southern Europe tend to be less skilled (e.g shop assistants) and more difficult to perform remotely. In 2017, more than a third of Dutch workers worked sometimes or usually at home. This proportion was less than 5% in Italy. Prof. Pedro Martins of Queen Mary, University of London, estimated that only 9% of Portuguese workers could perform their job remotely.

The problem is that all these workers that cannot perform their job remotely need extensive government support, and Southern European safety nets have notoriously struggled to reach people at the periphery of the labour market. This is because they often privileged the protection of jobs over the protection of people. There are two ways to protect workers from unemployment: one can provide income support if they lose their jobs, or make it more difficult for them to lose their jobs in the first place. While employment protection has been relatively high (emphasising the latter), the social safety net had many gaps (to the detriment of the former). One simple way to measure this is to compare the number of people receiving unemployment benefits and the number of unemployed: the OECD shows that the discrepancy between these two numbers is much greater in Mediterranean countries than in Northern Europe. These gaps in coverage – due to restrictive entitlement rules such long minimum contribution periods, or a sizable informal sector – have particularly affected younger people, families and women without long and stable contributory periods.

In this context, reaching effectively those in need of government assistance has been a challenge in Southern Europe. “Layoff” or income protection programs have been able to reach those that could justify formal employment, but Southern Europe’s shadow workers, for instance the female carers and childminders that take care of the young and old in Italy, have struggled to access assistance while their economic activity had to be interrupted. The crisis could and should be an opportunity to improve this safety net.