The Nordics must pull together to emerge from the epidemic

Just like a Covid-19 patient’s temperature chart tracks the stages of the disease, unemployment is one of the key measures for how countries are dealing with the situation. Countries have not been able to isolate from the pandemic, nor have they been able to isolate their economy from the rest of the world.

Unemployment in the 37 OECD countries rose from 2.1 million to 37 million people in March. Figures from April show a sharp rise in unemployment in the USA from 4.4% in March to 14.7% in the week ending 18 April. That is the highest level since January 1948. It is one of the most frightening charts to come out of the OECD:

The graph shows annual unemployment figures for the OECD, the Euro area and USA in March since 2005. Some countries vary in the way they define unemployment. The curve for the USA stretches to 18 April, a bit longer than the rest of the curves. Source: OECD

The Corona pandemic has hit rich and poor countries alike. Statistics show a rapid rise in unemployment in Europe too. Norway’s Minister of Finance Jan Tore Sanner presented the country’s revised budget on 12 March, pointing out that changes to the autumn budget would normally be small.

This year, the government has already spent 120.6 billion Norwegian kroner (€10.9 billion) more than in the original budget in order to fight unemployment and the economic crisis. On 7 April 290,000 people were fully unemployed and 190,000 were partially unemployed. Unemployment has fallen somewhat since then, as Norway has begun to lift some of the lockdown measures.

But Norway, with its fossil fuel economy, is very dependent on international trade.

“The Norwegian and international economy has been hit by the worst shock since WWII. As a comparison, global BNP fell by 0.1% during the financial crisis. This year the global economy has fallen by 3% according to the IMF,” said Jan Tore Sanner.

The financial crisis hit in the summer of 2008. As the graph above shows, unemployment rose until 2013, before it started falling. But only in the past few years has it reached the same level as it was before the financial crisis. 

Denmark was first among the Nordics to take drastic measures to limit contamination, by closing schools, restaurants and shops, banning gatherings of people, introducing travel restrictions and asking people who could to work from home.

Tripartite negotiations ended in an agreement where the state would pay the majority of wage costs for companies where at least one third of staff were at risk of being furloughed. The state would pay 75% of wages, and workers contributed by giving up five days’ leave.

“Anti-contamination measures benefit us all, but the consequences – despite the crisis package – are worse for certain businesses, workers and citizens,” writes the Danish expert group tasked with advising how society should return to normal.

The group, led by Professor Torben M. Andersen, have presented a report that aims to present an overview of what is happening and the balances that have to be struck.

“If you look at it from a health point of view, you should begin to lift restrictions in areas where the risk of infection is the lowest. If you look at it from an economic perspective, restrictions should be lifted first where the social consequences are greatest. That is why it is important to balance the health-related and socio-economic consequences, and that the strategy for reopening the country is based on facts.”

But to make “informed decisions” as the Danish report calls it, is not that easy. 

Nationwide lockdowns like what we have seen over the past months have never happened before, and many of the measures aimed at dealing with the crisis have never been tried out before. There is at the same time a need to make quick decisions, even before all information and statistics are in place. The report’s authors have created a graph to try to show the infection risk and socio-economic importance of a business:

Source: Report from the economic expert group regarding the reopening of Denmark. The graph has been somewhat simplified from the original.

The graph shows that universities and upper secondary schools have relatively low infection risks but large socio-economic importance, measured in the number of employees. Supermarkets have a high infection risk but are also so important socio-economically that they were not closed in Denmark.

There are other factors too, like the fact that gyms – relatively high infection risk, few employees – can still give health benefits in different ways.

When the authorities have considered all the factors and lifted the restrictions, nobody knows much about what will happen then, either. Will consumers change their habits? Will they consume as before, or be cautious about spending money?

“It looks like much of the increase in saving which we have seen so far has been involuntary, and not necessarily a result of more careful consumers because the consumers believe their saving habits will remain relatively unchanged in 12 months from now,” writes Danske Bank in analysis.   

The Danish expert group has looked at how consumption has changed for some businesses. Here we show hairdressers, who could reopen on 20 April, and the clothing trade, which faced some restrictions but was not closed down:

The graphs show the proportion of card payments, compared with the same weeks last year. Easter has been omitted. The amount paid to hairdressers fell dramatically, but since reopening they have made more than last year. The fall is less dramatic for clothes stores so that the spending is still just 75% compared to last year.

“There are clearly some problems and costs linked to lifting the restrictions too slowly or too quickly. But there is a basic asymmetry. If you move too fast, contamination might spiral out of control and you might have to reintroduce the restrictions,” the report’s authors write. 

“This type of stop-and-go policy would also have major socio-economic consequences. It could lead to increased insecurity with further negative socio-economic consequences. 

“Because of this, it might not be desirable to have too rigid a plan for the lifting of restrictions. It is, however, important to explain which conditions decide which restrictions can be lifted,” the report’s authors conclude.