COVID-19 has wreaked havoc around the world in ways unimaginable. Turning to the business sector, many issues arose which was unprecedented and it catalysed the already brewing geopolitical concerns.
According to Business Standard, the economy would be hit by 3 major waves-
1. Worker layoffs, curtailment of business investment, disappearance of retirement nest eggs
2. Households coming to terms with their much diminished wealth
3. Reduction in business investments
Countries around the world have frozen their economies through lockdown to curb the spread of COVID-19. Radical times calls for radical plans. The government of Denmark has come up with one such economic plan – to pay the businesses to keep their employees.
Many Private companies has been hit so badly by the pandemic that they may have to do mass lay-offs. The Danish government has agreed to pay such companies 75% of the employees’ salary to avoid mass lay-offs. This would require them to spent almost 13% of the country’s GDP in just 3 months. Economists around the world has raised concerns about the feasibility and practicality of this plan.
According to Peter Hummelgaard, the Employment Minister of Denmark, this plan is right for the extraordinary health crisis the country is facing. If this was an ordinary recession, the government would have gone for some traditional unemployment programs. However, the current scenario may lead to a structural problem due to the combined effect of mass lay-offs and reduced aggregate demand. The cost to the Danish economy as well as to their deficit due to this would be much more if they do not invest in this economic plan. To put it simply, it is more expensive to do less.
The Danish government understood that it would be inevitable to fire some of the workers due to economic inactivity. But if the economy is to recover after 3 months, when the threat of COVID-19 hopefully vanishes, the cost and delay of rehiring may act as a bottleneck. Hence, it is better to keep the existing workforce by paying them for not working.
Under this economic plan the Danish government would cover the following:
a) Salary of employees
b) Fixed cost like rent
c) Sick leave compensation
d) Postponement of deadline of taxes
So it’s clear that this is a generous plan. Then isn’t it possible to defraud the government by pretending to send the employees home while making them work secretly? Well, no.
Denmark is a highly digitized country. The government can easily keep track of businesses and see their working via their transactions and other records. Moreover, the employer has to obtain an authorized accountant’s sign to proceed with their compensation application.
Now, consider whether this economic plan is adoptable in India. And if adoptable, will it work? For that let’s take a look at the Danish society. The pace at which the government passed this economic plan is truly commendable, i.e., a couple of days after they announced lockdown. This is despite the fact that government is a coalition of as many as 10 parties. Moreover, a tripartite agreement had to be reached between the government, the unions and the employers. Could it have been this easy in India? Most probably, not.
Written By – Taniya John (Editor, TJEF)