for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up

Breakingviews - Hadas: Welfare states will be big Covid-19 winners

LONDON (Reuters Breakingviews) - Disasters often teach people what is really important. The fight against Covid-19 is showing how helpful strong welfare states are to modern economies. The lesson is unlikely to be forgotten.

A healthcare employee protests against alleged cuts to paid time off and disability benefits as the global outbreak of the coronavirus disease (COVID-19) continues, outside Centinela Hospital Medical Center, in Los Angeles, California, U.S., May 5, 2020.

Lockdowns have made many jobs impossible to perform. In the United States, where firing is easy and government support haphazard, the unemployment rate is set to rise above 20%. It was 3.5% just before the coronavirus outbreak. In Europe, the proportion of the workforce that is banned from working is similar. However, European unemployment rates are not expected to reach anything like American levels.

The main difference is taxpayer-funded programmes to keep payrolls intact so that employers face less pressure to lay off workers. While that will push up budget deficits, the return to economic normalcy will be much faster where workplaces have been kept in suspended animation, rather than smashed up.

A different arm of the welfare state, social care for the elderly, has been much less satisfactory on both sides of the Atlantic. The systems in the UK, most of the continent south of Germany, and the United States were inadequately funded and ill-equipped to deal with Covid-19. But the bitter response to the failures shows how much people in these countries count on the government to take care of them in tough times. This will shape post-Covid policies. Three trends are already starting to emerge.

First, politicians and bureaucrats will have more opportunities to do something that they know how to do: develop new arrangement to protect the most vulnerable. Unemployed voters will have more security and old people will be better cared for. There is likely to be enough political support to raise the money needed to improve nursing homes and public services right away. Employment support will mostly be contingent. Outside the United States, there is a little interest in expanding already-extensive welfare states so the goal will be to have better programmes ready for the next time.

Depending on governments means keeping them better informed. Governments will start to keep closer tabs on incomes and employment. Expect mandatory detailed reporting of the cash flows of small businesses and self-employed workers. It’s the economic equivalent of permanent track and trace software.

Second, the United States will move in a generally European direction in the provision of welfare. Progress may be limited in a country that has resisted mandating paid sick leave and annual vacations. However, even conservatives mostly love prosperity more than they hate government. The shock of extraordinarily high unemployment rates encourages a partial suspension of principles, and even a willingness to pay higher taxes.

One way forward is a guaranteed universal basic income. Some libertarians are keen on UBI because it sounds unbureaucratic. In Europe, these programmes may simplify a generous but complicated system. In the United States, they increase the incomes of the people most likely to suffer in a crisis. Andrew Yang, who promoted UBI as a Democratic presidential candidate, may yet get his way.

Finally, more careful European tracking and more generous American benefits could bring more marginalised workers into the regular workforce. This would continue a two-century-old trend: the shift from casual labour that is barely taxed to highly-taxed, state-registered employment.

The recent rise of the so-called precariat, especially undocumented workers, suggested the trend was reversing. Those developments could turn out to have been just a temporary aberration. However, this change is the most tentative.

The current political mood on both sides of the Atlantic favours helping the low-paid workers who are disproportionately exposed to Covid-19, for example carers for the elderly. Justice is not the only motivation. Stronger welfare systems would benefit the prosperous by reducing the economic pressure that forces contagious workers to keep working.

Selfish reasons to be more generous will, however, disappear with the pandemic. And fulfilling promises of financial solidarity would help politically unpopular migrants. Proponents of regularising the status of all migrants and bumping up wages need to move fast.

The welfare state brings economic benefits to all, but ultimately it is always a political project. And for the moment, the politics favour more active and more generous government.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up