The Coronavirus Crisis Poses Economic and Social Risks for the Unemployed
ResearchZEW Expert Brief on Social Participation
German unemployment only saw a moderate rise since the onset of the coronavirus crisis. Meanwhile, an unprecedented number of workers remain in short-time work schemes. As the COVID-19 pandemic progresses, however, unemployment rates are likely to rise. For those affected, unemployment imposes not only economic, but also social costs, which has been illustrated in a recent ZEW expert brief. “Policymakers should therefore give utmost priority to preventing unemployment in order to mitigate the severe social consequences,” says Dr. Laura Pohlan, a researcher in the “Labour Markets and Human Resources” Department at ZEW and co-author of the study.
The German unemployment rate rose from 4.9 to 6.2 per cent in the period between December 2019 and June of this year. The fact that unemployment has increased only moderately is mainly due to the large-scale rollout of short-time work schemes. In May, more than seven million workers were in short-time work arrangements, which represents more than 15 per cent of all persons employed. Although optimism about an economic recovery is rising, “experiences have shown that it takes some time until this translates to corporate investments and new hires in the labour market,” explains Boris Ivanov, also a researcher in ZEW’s “Labour Markets and Human Resources” Department and co-author of the expert brief. In June 2020, only 570,000 job vacancies were reported to the employment agencies – 228,000 less than last year, – which represents a decrease of 28.6 per cent.
Unemployment affects mental health and life satisfaction
The anticipated rise in unemployment will also bring about challenges on both a social and individual level. “In a study, we found that the mental health issues of previously employed persons rise by 8.9 percentage points when they lose their jobs,” emphasises Laura Pohlan. “Data for the period between 2007 and 2015 show that job loss is associated with a 7.3 per cent decrease in general life satisfaction. Moreover, perceived social integration falls by 6.1 per cent, while the social status declines by 3.8 percentage points,” explains Pohlan.
When individuals remain unemployed for a longer period of time, this further exacerbates the negative social consequences for those affected. Long-term unemployment often comes with serious social costs. While employed individuals rate their general life satisfaction as 7.4 on a scale of zero to ten, among the long-term unemployed this figure is only 5.9 and often remains low even after they have found work.
In light of the social restrictions and the uncertainty about the economic outlook, the current crisis puts an additional strain on the situation of those affected as it further intensifies the negative effects of unemployment on social participation. The coronavirus crisis also affects the career prospects of high school and university graduates, as it has become more difficult to find an apprenticeship or enter the labour market. The Covid-19 crisis could therefore aggravate the social consequences of unemployment.
Employment programme benefits the long-term unemployed
A second ZEW study shows that participating in the employment programme “Soziale Teilhabe am Arbeitsmarkt” (“Social Inclusion in the Labour Market”) considerably improves social participation among the long-term unemployed. After seven months in the programme, life satisfaction among participants increased by around 14 percentage points compared to similar long-term unemployed individuals who did not take part. In addition, the participants’ score for mental health was around 11 percentage points higher than that of the long-term unemployed in the control group. As a result of the programme, perceived social integration rose, on average, by 10.7 percentage points, while the social status increased by 4.6 percentage points.
Since both ZEW studies analyse the same variables, they can be directly compared to one another. The comparison shows that the average increase in social integration from participating in the employment programme is larger than the average negative impact of losing a job. “This can be explained by the fact that the employment programme explicitly targets long-term unemployed individuals with poor employment prospects,” assures Boris Ivanov. “The long-term unemployed are particularly affected by the negative social and economic consequences of unemployment. On the other hand, they also seem to be the ones who benefit most from re-entering the labour market,” concludes Laura Pohlan.
