Protecting MBA Jobs from COVID-19 Unemployment with “Kurzarbeit”
The American jobs market has received intense scrutiny since the COVID-19 pandemic drove unemployment up throughout the country. One April 2020 survey disclosed that over 50 percent of the respondents below 45 years old had lost jobs, endured furloughs, or suffered reduced hours. By mid-May, unemployment was reportedly approaching 20 percent in some hard-hit U.S. regions. Federal Reserve Chair Jerome Powell even told 60 Minutes that he expected national unemployment would crest as high as roughly 25 percent—equivalent to the 1933 Great Depression unemployment peak.
Did U.S. unemployment really have to deteriorate so rapidly and severely? No, it did not. Believe it or not, during the crisis, another Western nation limited unemployment not far above its September 2019 level of only 3 percent.
Read on to discover how the United States could protect MBA jobs by adopting a Western European nation’s superior unemployment reduction approach. But first, let’s take a closer look at the pandemic’s U.S. employment trends and their effects on MBA jobs.
MBA Job Market Concerns During the COVID-19 Pandemic
Since early March 2020, executives holding MBA degrees employed in sectors hardest hit by COVID-19 (energy, aviation, and hospitality) have worked under an especially alarming threat of unemployment. Soon, reports surfaced that the lockdowns were also affecting the MBA job prospects for students and graduates, having job and internship offers revoked or delayed along with hiring freezes.
A survey by the Graduate Management Admission Council (GMAC) showed that half of prospective business school enrollees expressed anxiety about the job market after the pandemic, with 35 percent “very concerned” or “extremely concerned.” What’s more, 53 percent of the prospective MBA students expressed job market concerns—about 26 percent more than the prospective specialized business master’s degree students.
A Better Job Landscape in May?
Before an American public desperate for good news, on June 5, it initially appeared that the May jobs report indicated a shocking increase in new job creation. Most forecasters had predicted a terrible 20 percent national unemployment rate, but it was not that bleak. At first, the press reported a 13.3 percent unemployment rate, which triggered a huge Wall Street rally with the Dow Jones Industrial Average soaring 1,000 points.
However, a careful analysis of the report revealed that the real rate was actually closer to 16.3 percent. That’s because of a major, 3 percent “misclassification error” that the Bureau of Labor Statistics had failed to correct during the past three months of reports.
The May rate would nevertheless amount to a significant improvement over the April rate of 19.7 percent that applied similar standards, about a 17 percent decrease. However, the facts that the error was so large and had continued for such a long period called into question the credibility of the BLS’s reporting during the pandemic. The agency derives the rate based on a survey of 60,000 households—a sample size level as a percentage of the population that has been known for decades to return accurate statistical inferences about a variety of national income measures, as well as in political polling. But for the past three months, the BLS model consistently undercounted the results by a substantial margin—and the lack of a correction by the Bureau in May seems surprising.
Despite the error, unemployment in the United States still remains at the highest level since the end of the Great Depression. According to the Washington Post, “many economists wish people would focus on the fact that 21 million Americans are currently unemployed and over 2 million have permanently lost their jobs. The situation remains dire, they say, even after a few jobs returned in May as the economy reopened.”
What is Kurzarbeit? How a German Concept Could Preserve Jobs for MBA Graduates
With such a bleak outlook, is there anything policymakers could do to reduce the impact of the pandemic on unemployment and help preserve MBA jobs? Yes, absolutely! It turns out that one Western European nation has dramatically limited unemployment for many decades by applying an approach vastly superior to those used by America’s state unemployment insurance (UI) systems.
That nation is Germany. Last fall, German unemployment stood at 3.2 percent. But now, in the middle of the pandemic, it’s still only 3.8 percent. That’s only about a 19 percent increase during this tumultuous period, compared with the 600 percent increase across the United States that in mid-May the Federal Reserve had expected. Despite the pandemic, the International Monetary Fund forecasts German unemployment to eventually peak at only 4 percent in 2020. And in Germany, tens of millions of employees halted working—but they never lost their jobs.
How did Germany work this magic? The German government operates a 100-year-old unemployment insurance system based on a paradigm virtually unknown in the U.S. The Germans call their paradigm Kurzarbeit, which loosely translated means “short-time work,” and it’s one reason their country recovered so rapidly from the Great Recession in 2008-2009.
The purpose of the system is to preserve employment relationships that may be unnecessarily severed during unexpected economic contractions. The biggest employers in Germany like Volkswagen, Daimler, BMW, Bosch, Siemens, BASF, Bayer, and Lufthansa all participate in the plan.
Under Kurzarbeit, the government subsidizes wages for employees who agree to stop working or work a substantially reduced schedule. In exchange, employers agree not to let workers go, and to continue paying them while the government reimburses the payroll expenses.
The subsidies range from 60 percent for employees without dependents to a whopping 67 percent for those with children. This is a vastly more generous level of support than what furloughed workers in the United States typically receive. What’s more, recent expansions cover contractors and “gig economy” workers—a burgeoning segment of all developed economies including Germany’s.
In Western Europe, five other nations had already adopted modified versions of Kurzarbeit before COVID-19 arrived. Although these systems were designed to attenuate normal downturns in the business cycle, they are ideally suited to limiting runaway unemployment resulting from efforts to control the spread of the pandemic. One estimate suggests that more than a fifth of the workforce participates in such a plan in the United Kingdom, France, Italy, the Netherlands, and Spain, as well as in Germany.
Kurzarbeit’s Endorsements by Business School Faculty and Public Figures
One business school professor quoted on this topic is Dr. Simon Johnson, a professor of entrepreneurship and global economics at the MIT Sloan School of Management. Professor Johnson served as a chief economist at the International Monetary Fund, as well as a member of the Congressional Budget Office’s Panel of Economic Advisers. He explained to Britain’s The Guardian how retaining a skilled workforce and financially supporting affected households should in principle permit individuals, families, firms, and nations to rebound more rapidly as soon as the crisis is over. “Keeping people connected to their employers is a good idea,” he told the publication.
University of Notre Dame economics professor Rudi Bachmann, a labor market expert who hails from Germany, concurs with MIT’s Professor Johnson. “In principle, once the pandemic is more or less under control, there’s no reason why the [German] economy should not restart in a moment’s notice,” he told VICE.
Moreover, Dr. Bachmann emphasized that beyond subsidizing pay for employees, Germany’s government also provides comprehensive assistance for companies’ other costs that help keep the firms operating. “In Germany, it’s clear much more than in the U.S., [that] the emphasis has been on saving firms,” he told U.S. News and World Report.
Dr. Johnson also described to The Guardian how all these nations in Western Europe outside Germany recently adapted the model to the pandemic after observing how swiftly the German economy bounced back from the Great Recession. Indeed, Kurzarbeit limited German claims for unemployment insurance to only a 0.2 percent increase from 2008 to 2009, versus a 1.6 percent increase in France during those years. “The people who are closest to Germany actually seem to have got this, those that are further have struggled to understand it,” he said.
Moreover, key figures in the United States political establishment have already endorsed Kurzarbeit as a model for crash reforms to the U.S. state unemployment insurance systems.
A surprising example is the usually conservative Fox News commentator Tucker Carlson, who featured Kurzarbeit on one of his broadcasts on March 17:
. . .critically, [Kurzarbeit] keeps people in their jobs. It’s also straightforward, unlike so many of the double-secret, backward tax rebate programs the geniuses in Congress are always coming up with and telling you [that] you should love and be happy with. But you don’t ever understand them, and neither do they.
This idea has a clear goal, and it achieves it. During the 2008 financial crisis, Germany’s economy shrank by a higher proportion than ours did in America. Yet, at the same time, Germany’s unemployment rate actually fell. Labor force participation rose.
So amazingly, in the middle of an economic contraction, a bad recession, more people were working than before. That’s the key as we look forward to turbulent times. Employment, stability, meaningful work—if you want to help people weather this crisis, the one that’s coming, save their jobs. It’s that clear.
Overall, the Germans have shown us that the best way to help people weather the coronavirus pandemic is to save their jobs. Kurzarbeit is an idea whose time has come—and it could save MBA jobs for alumni as well as graduating students. The paradigm offers tremendous advantages and few if any disadvantages that appear to hold up under scrutiny.
One would hope that citizens in the 26 states with initiative referendums like California and Massachusetts campaign to list Kurzarbeit unemployment insurance reforms on their ballots without delay.