Yale School of Management

Program on Financial Stability

Improving our understanding and management of systemic risk.

Programs Support Individuals through Unemployment Insurance and Wage Subsidies

April 8, 2020
: By Mallory Dreyer, Rosalind Z. Wiggins and Greg Feldberg

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Governments are providing extraordinary relief to the unemployed during the COVID-19 pandemic. Countries are both extending existing coverage and establishing temporary new income-support programs to help individuals who have been furloughed, lost their jobs, or face an imminent layoff. Key considerations for these programs include:

  1. Channel: What is the channel for providing the benefits? 
  2. Size: What is the monetary value of the benefits provided?
  3. Private-sector Funding: Do employers share the cost?
  4. Eligibility: Who is eligible to receive the benefits?  
  5. Length: What is the timeframe for the benefits? 
  6. Administration: How does the individual receive the benefits?

Channel

Governments can provide income support directly to individuals or through their employers. Standard unemployment insurance programs provide direct support and payments to individuals who are laid off. In response to the COVID-19 pandemic, the US CARES Act expands existing unemployment insurance benefits. Australia replaced existing unemployment insurance programs with the expanded JobSeeker Program. The Australian government also announced the Coronavirus Supplement, which provides an additional AUD $550 every other week to eligible individuals. 

The other channel is through the employer, which is common in some European countries. The  European Commission for example, has announced a plan based on the German Kurzarbeit, or “Short-Time Work Scheme,” which provides wage support to eligible employers who would otherwise lay off employees due to a forced suspension or reduction of work. During the Global Financial Crisis, this program supported more than 1.4 million individuals. In response to COVID-19, multiple countries are adopting or expanding temporary short-time work schemes, such as France, Austria, Australia, Denmark, New Zealand, and others. Though the support is based on employer eligibility, the aid ultimately benefits the individual who would otherwise be unemployed. 

Size

Governments may base the size of a benefit on an individual’s average earnings or pay a flat rate to everyone, regardless of their prior income. Australia's JobKeeper program pays a flat rate of AUD 1,500 per employee every other week, which is the equivalent of 70% of the median wage in Australia. Greece will provide EUR 800 per month to all individuals who are unable to work due to the COVID-19 pandemic. The New Zealand wage subsidy program provides a weekly flat rate payment based on the employee’s average weekly hours: $585 for those working more than 20 hours per week, or full-time, and $350 for those working less than 20 hours per week. 

Most European countries provide benefits based on a replacement rate, that is, a percentage of an individual’s average earnings. Replacement rates vary across countries but are typically between 60 and 80 percent. For example, Germany pays 60% of lost wages or 67% for people with children. Belgium provides direct benefits equal to 70% of an individual’s prior average earnings. In Belgium, individuals can also receive additional daily allowances if they lose work due to a “force majeure” such as the coronavirus or economic conditions. In Bahrain, a parliamentary committee passed a provision on March 30 mandating the unemployment fund to pay the full salaries of all private-sector employees for three months. 

Most countries cap the benefit per individual. Belgium’s program has a monthly cap of EUR 2,755. Denmark initially capped monthly government support at DKK 23,000 for salaried employees and DKK 26,000 for hourly employees. It increased the limit to DKK 30,000, regardless of hourly or salaried status a few weeks after announcing the program. Germany and France limit monthly benefits of wage-subsidy programs to EUR 6,700 and EUR 6,927 respectively, while the monthly maximum benefit in Italy, Spain, and Ireland is less than EUR 2,000 per month. 

Private-sector Funding 

Some countries require employers to chip in to participate in wage-subsidy programs. The Danish government pays 75 percent of an employee’s salary and requires the employer to pay 25 percent; for hourly wage employees, the government covers 90 percent. Estonia pays 70% of salaries, but requires employers to also provide EUR 150 in wages. For employees in New Zealand whose usual wages are more than the subsidy, their employer must try to pay at least 80% of their usual wages, though employer contributions are not required.

Eligibility

Governments must determine who is eligible. Countries with existing programs already have criteria for eligibility. For example, some countries do not allow people who quit their jobs to claim unemployment benefits. However, some countries have expanded eligibility in response to the COVID-19 pandemic. Significantly, the United States and Australia now allow individuals who are self-employed or contractors to claim benefits, through expansions of existing programs or under new benefits. The US also includes employees who leave their job for a COVID-19-related reason, such as inability to work due to quarantine or caring for a family member with the virus. 

For programs such as short-time work programs that are channeled through the employer, eligibility is based on the company, rather than the individual. In France, wage subsidies are available to employers who are forced to suspend or reduce business activity due to COVID-19. Other countries set more specific criteria. Bulgaria  extends its program to employers in sectors most affected by the pandemic, such as retail, land and air transportation, and restaurants; employers forced to suspend activities because of quarantine; and employers that experienced a 20 percent decline in sales in March. Other countries do not specify sectors but limit their programs to those experiencing a certain percent decline in sales or workforce, such as Denmark and Estonia. In order for employees to receive wage subsidies in Denmark, the employer must document that it has retained employees during the covered period. Other countries, such as New Zealand, make wage subsidies available to employers who rehire employees they recently let go due to COVID-19. 

Most wage-subsidy programs cover all employees, though programs differ on whether or not employees who still work can be covered under the program. In the UK, for example, employees must be placed on furlough and cannot provide work or services for the employer while receiving the wage subsidy. In Denmark, employees must take five paid vacation days to be covered under the program. Denmark’s program provides coverage for both full- and part-time employees, in addition to self-employed or sole-proprietors. Other countries provide wage subsidies for employees who work reduced hours, such as Germany and France

Length 

Unemployment insurance and wage-subsidy programs are generally limited in duration. For unemployment insurance, many countries have a maximum number of weeks that an individual is entitled to receive benefits. The US CARES Act provides an additional 13 weeks of unemployment insurance, on top of the standard 26 weeks. During the 2008-2009 crisis in the United States, the government extended the entitlement period multiple times, with unemployed workers eligible to receive up to 99 weeks of benefits.Wage-subsidy programs vary widely. Italy will provide wage subsidies for nine weeks. Denmark’s modified wage-subsidy program is available for three months. The wage subsidy in Germany’s Kurzarbeit program can be collected for up to 12 months.

Administration 

Many countries will leverage existing infrastructure and systems to pay benefits. These include Germany, France, and Spain. 

Some countries are also streamlining application processes to expedite support. For example, the process in Belgium occurs entirely online and requires forms from both the individual and the employer. In New Zealand, the employer applies for support on behalf of the employees it plans to cover under the wage subsidy. In France, the government must decide within two business days whether to provide support to an employer through the short-time work scheme. If the employer receives no decision, the support will be granted automatically. Bulgaria similarly requires the government to make timely decisions. 

In response to the COVID-19 pandemic, many countries are implementing and extending various policies to provide support to individuals. For an overview of different types of programs, see “Government Support for Individuals in Response to COVID-19.”