The three pitfalls for stimulus packages – Natixis

The economic stimulus packages for the post-COVID crisis must avoid three pitfalls in the labour markets: increase in structural unemployment, zombie firms and further destruction of intermediate jobs and reduced social mobility. To avoid these three pitfalls, the only solution is to accept redundancies in sectors in lasting difficulty and to combine retraining with support for the economy's move upmarket, economists at Natixis brief.

Key quotes

“Some sectors are likely to be in trouble for a long time (automotive, air transport, aeronautics, tourism, traditional retail); other sectors will grow (new technologies, telecom, online retail and associated logistics, healthcare and pharmaceuticals, personal services, agri-food). Employees who lose their jobs in struggling sectors do not necessarily have the skills that enable them to find jobs in growth sectors. This may lead to a sharp rise in structural unemployment linked to the difficulties of reallocating employment from struggling sectors to growth sectors.”

“If governments support all companies to prevent job losses, including companies in long-term difficulty, they will give rise to a further sharp rise in the proportion of zombie firms. There is a temptation to create zombie firms: this allows governments to avoid massive layoffs in struggling sectors, but it results in a further drag on productivity and only postpones the required adjustment in employment.” 

“There is a possibility that the jobs that will be destroyed (in the automotive, air transport, aeronautics sectors) are more sophisticated than some of the jobs that will be created (personal services, logistics). This would lead to increased labour market polarisation: the disappearance of intermediate jobs in industry, the creation of a small number of sophisticated jobs (new technologies, etc.), and a large number of less sophisticated jobs (personal services, transport, etc.), and therefore a further reduction in social mobility.”

“We see that the required policy consists in accepting redundancies in sectors in lasting difficulty to avoid zombie firms, accompanying these redundancies with a massive, systematic retraining programme with wages being maintained by the government to avoid structural unemployment and support for the economy's move upmarket and for the creation of large companies in the sectors of the future: pharmaceuticals, healthcare, telecommunications equipment, equipment for renewable energies, Internet services.”