europe labour market

Europe’s labour market after furlough

  • In 2020, as economies shut down because of the pandemic, governments across Europe implemented furlough schemes that helped to prevent widespread job losses. At the peak of the pandemic in France, Germany, Italy, Spain and the UK, the programmes covered about a third of the workforce.
  • Policymakers assumed that the scheme would be short-lived and that the basic relationship between workers and employers would be intact once lockdowns were lifted. However, the pandemic has accelerated automation in some sectors and altered consumption patterns. As a result, furlough schemes may have prevented workers from being reallocated efficiently and, as the third chart suggests, firms that became more productive may be reluctant to take all staff back once the scheme ends.
  • The first two charts show that manufacturing output is back to the level it was before the pandemic, but a large number of manufacturing workers are still on furlough, suggesting that some of those workers will be made redundant once the schemes cease in September.
  • Our forecasts assume that furlough schemes have concealed important changes in the labour market and that unemployment will rise moderately once they come to an end. We expect average unemployment in France, Italy, Spain and the UK to increase from 9.2% in 2020 to 10.1% in 2021.

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