Unemployment in Europe and the United States under COVID-19: Better constrained in the corset of an insurance logic or at the whim of a liberal presidential system?

Abstract

The effects that the economic crisis triggered by COVID-19 is having on unemployment could hardly differ more than in the United States and Europe. This divergence also applies to the political reactions to it. Whereas the 27 member states of the European Union (EU-27) managed to keep unemployment in check largely through heavy reliance on short-time work or similar measures, the United States has been experiencing mass unemploy-ment reminiscent of the Great Depression of 1929/1930. Instead of short-time work, the United States has resorted partly to massive social transfers for certain groups of the unemployed, which may temporarily even raise some incomes to levels above those offered by employment. However, the social problems and the limits of economic policy associated with short-time work in the EU-27 are becoming increasingly apparent and unemployment is rising steadily, in particular among vulnerable groups. It is not yet clear which of these two economic and social systems will cope better in the long term with the industrial transformation that the crisis is accelerating. This essay argues that the European approach promises a more humane and effective solution to the crisis, but only if the European Union and its member states find a way to combine short-time work with more forward-looking labor market and social policies. It suggests that they could learn from some of the strengths of the U.S. system to improve the interaction between the federal government and the states.