Waging war on recessions

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...

via Business Feeds

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