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Economy

Clock ticks on 100m jobs as global stimulus packages expire

US, Japan and Europe brace for second wave of unemployment

People stand in line to apply for unemployment benefits in the U.S. state of Kentucky.   © Reuters

LONDON/TOKYO -- The fate of 100 million jobs hangs in the balance as a potential second wave of unemployment caused by the coronavirus pandemic looms over Japan, the U.S. and Europe with a combined $1 trillion worth of stimulus measures set to expire in the coming months.

The U.S. added 4.8 million jobs in June, the Labor Department announced Thursday, dropping the unemployment rate to 11.1% from a peak of 14.7% in April, as the country aggressively pushed to restart economic activities.

But employment is still far from returning to pre-pandemic levels, especially when several states have had to halt reopening plans because of a resurgence of COVID-19 cases. An additional 1.4 million Americans filed for unemployment in the week ended Saturday, according to a separate release by the department on the same day. 

In a bid to further promote economic recovery, the U.S. Congress recently extended the deadline for a loan application under the Paycheck Protection Program, a $60 billion initiative designed to help smaller businesses keep workers on their payroll, to Aug. 8 from the end of June. The funds must now be used by Dec. 31, instead of the initial deadline at the end of June.

The program helped save 50 million jobs, U.S. Treasury Secretary Steven Mnuchin has said. The government is reluctant to put an end to the program, especially with job growth accelerating in recent months. But payroll assistance for airlines is set to expire at the end of September.

In Japan, Tokyo has expanded its existing employment adjustment subsidy, usually granted to companies that have suffered a 10% or more year-on-year drop in sales or output in the past three months so they can continue paying their employees.

As a special response to the coronavirus, companies can now qualify for the subsidy with a 5% monthly decrease through the end of September. A total of 211,738 applications were approved as of Wednesday, and roughly 3 million workers have benefited since mid-February, though the program has come under fire for its complicated application process.

The normal subsidy will remain even in October and beyond, so Japan is not expected to suffer as much of an impact as the U.S. would from ending payroll program. Still, scrapping the 5% threshold will put 159,000 people out of a job and push the unemployment rate up by almost 10 points from April, according to Toshihiro Nagahama of Dai-ichi Life Research Institute.

Over 4.2 million Japanese workers had been furloughed as of May, largely in the hotel and restaurant industries. Japan has budgeted 1.6 trillion yen ($14.9 billion) across two supplementary budgets for fiscal 2020 for the subsidy.

European countries have also taken aggressive measures to ease the economic pain from the coronavirus. Germany, the U.K., France, Italy and Spain have each spent tens of billions of euros to pay furloughed workers, saving roughly 45 million, or a third, of jobs across the five countries. The unemployment rate in the eurozone came to 7.4% in May, still significantly lower than the roughly 12% figure in 2013 following the European debt crisis.

But mounting costs are forcing these countries to rethink their approach. For example, 9.3 million British workers had applied for 25.5 billion pounds ($31.8 billion) in furlough payments as of Sunday. The government is reluctant to sustain this program beyond the end of October, especially with its fiscal deficit projected to hit 300 billion pounds in fiscal 2020.

Roughly 9 million could become unemployed across the five European countries next year, according to financial service company Allianz. Allianz chief economist Ludovic Subran also said coronavirus relief measures could keep workers in industries with little growth potential, instead of diverting them to growing fields like information technology and health care.

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