18 Jun 2020

SINCE THE emergence of the welfare state, adults who want to work have generally found themselves in one of two positions: earning a wage from their job or receiving unemployment benefits. The pandemic has led many people to find themselves in a halfway stage—furlough. This often involves the state paying a large slice of employees’ wages so that firms can keep them on the payroll during the lockdown.

How effective is this approach? A new paper* by Morten Bennedsen of INSEAD business school in France and colleagues surveyed 8,781 Danish firms with anywhere between three and 2,000 employees. Around two-thirds of the firms said that the effect of the pandemic on their revenues had been negative, or very negative. Of those companies that had experienced a fall in revenues, the median decline was 35%.

The Danish government offered a variety of financial-aid programmes to firms, including a furlough scheme which paid 75% of salary costs (subject to a cap) to eligible companies. The academics found that 56% of the firms surveyed had taken some form of government aid and this was true of almost all businesses that had suffered a revenue decline of more than 50%. Unsurprisingly, companies in the most distressed industries were most likely to have taken assistance.

The aid seemed to work. Firms that received it laid off...

Read the full article here.
This content was originally published by The Economist: Business. Original publishers retain all rights. It appears here for a limited time before automated archiving. By The Economist: Business

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