Impact of lockdown on the euro area labour market in 2020 H1

Abstract

Labour markets in the euro area in 2020 Q2 were severely affected by the COVID 19 lockdown measures. In this context, the conventional concepts of employment and unemployment are insufficient to describe labour market developments. Job retention schemes averted potential redundancies and replaced them with temporary lay-offs and reductions in working hours. Further, many workers who lost their jobs were unable to seek work owing to mobility restrictions. Accordingly, under the conventional measure of unemployment, they were not considered unemployed. A broader measure of the unemployment rate, taking into account this type of inactivity and temporary lay-offs, lifts the share of the euro area population available for work who were totally or partially unemployed in 2020 Q2 to 27%. The sharp increase in unemployment, understood in this broader sense, and the short-time work schemes prompted an unprecedented fall-off in employment in terms of hours worked. This decline was highly uneven, with Spain being the hardest-hit country. In principle, temporary lay-offs should help curb the potential hysteresis effects on the euro area’s labour markets. However, the more protracted the health crisis, the more severe these effects will tend to be.