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FRANKFURT (Reuters) – Government wage subsidy schemes shielded eurozone households from the majority of income losses during the bloc\\\’s pandemic-induced recession, and wage losses are now rapidly diminishing, a European Central Bank study showed on Wednesday.
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Under various “short-time work” initiatives, companies can temporarily cut working hours in periods of economic stress and governments pay most of the lost wages in exchange for job guarantees.
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Without such arrangements, households in the currency bloc would have lost 22% of their labour income at the height of the lockdown, but the actual loss was only around 7%, the ECB said in an Economic Bulletin article.
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“After the end of the lockdowns the low impact period illustrates that the loss in net labour income could diminish to -3%, while short-time work benefits rapidly diminish,” the ECB added.
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Over 35 million workers in the five biggest euro zone countries may have been on a short-time work scheme at the height of the crisis, the ECB said, a key reason why unemployment rose to just 7.3% in April, half of the rate in the United States.
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The scheme, which allowed Germany to emerge from its 2009 recession quicker than most others, preserves jobs, household spending power and corporate margins, expediting any recovery.
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“Reducing household income uncertainty is a further channel through which public policy can help to alleviate the adverse effects of the coronavirus pandemic on household spending,” the ECB added.
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(Reporting by Balazs Koranyi, Editing by William Maclean)
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