Ukraine is a small open economy that will be severely affected by the crisis caused by the coronavirus pandemic and other factors.
The main specific feature of this crisis is the temporary nature of the shock caused by the pandemic. Ukraine does not have resources or capabilities to overcome this crisis through the huge volumes of financial inflows.
The main thing the country can do is to accelerate the time required to go through this crisis, and therefore, the economy should be as mobile as possible during this period.
It is necessary to roughly divide this situation into two crises: a short-term economic shock related to the quarantine and a medium-term global financial and economic crisis.
These two crises require different responses and the most efficient use of the limited resources available in Ukraine: to keep businesses afloat and protect jobs during the quarantine, and then – to stimulate the re(launch) of the economy.
This text is about the first step in supporting the most vulnerable businesses and employees.
The practice of hidden unemployment has been common in the 1990s. This is when businesses did not have money, so they forced people to interrupt their work and go on leave with no pay while considering their payments as wage arrears or not paying them at all.
Now such a situation is likely to happen again.
During the quarantine and the related economic instability, many employees from the most seriously affected companies will face the choice of leaving the company without money and without the right to unemployment benefits or quitting the job and queuing to register at the job center, which is one of the most crowded areas, during the pandemic.
In practice, the entrepreneur-initiated termination also requires money and time, which the inactive business does not have. That is, a person is faced with the choice of either empty pockets or the risk of contracting coronavirus.
We have analyzed international practice and dozens of new articles, statements and columns of by Ukrainian authors on how to deal with the coming crisis.
The main problem almost all experts say nothing about is that the quarantine will last not for several weeks, but for several months, which causes hundreds of thousands of Ukrainians to be out of their job or businesses to be on the brink of bankruptcy.
China has 442.47 million employed people. Data show that about 4.67 million people lost their jobs during the coronavirus outbreak in January-February 2020. In other words, 1.06% of the Chinese were out of a job.
If we transpose this figure to Ukraine, where 12.5 million employees were insured in 2019, it turns out that 132 thousand Ukrainians are at risk of losing their jobs in the coming months.
However, China is a state-controlled economy, which the second largest in the world, and therefore it has much more capabilities to overcome the effects of the crisis. China has taken unprecedented measures and allocated hundreds of billions of dollars for loss compensation.
Ukraine does not have such capabilities.
Analytics indicate that Western countries either compensated for the losses of entrepreneurs or simplified the staff redundancy mechanisms and provided the unemployed with state aid to save businesses.
Given Ukrainian realities, can we allocate money as state aid or credits to all businesses to avoid the reduction of the employees and termination of operations?
Can we afford to simplify the staff redundancy procedure to save some of our employees and companies from bankruptcy, but leave the rest of our employees without money in our epidemic situation?
Obviously, both answers are negative. However, we do see a way to combine benefits for employees and businesses in both scenarios. What do we offer?
In our opinion, it is necessary to create a special procedure, under which employers will become entitled to send workers in quarantine (self-isolation) while simultaneously submitting online documents to the State Social Security Fund in case of Unemployment for unemployment allowances due to the quarantine (self-isolation).
There is a procedure for assigning partial unemployment allowances in similar cases in the Employment Law. We can improve this procedure or establish a new one.
The main goal is to enable non-paying companies to provide employees with unemployment benefits due to the business interruption during the quarantine on the first day of self-isolation without loss of employment.
In doing this, such companies should be exempted from the obligation to pay wages to employees who are idle and receive unemployment allowances.
Thus, enterprises that will have to suspend their activity due to the pandemic can avoid dismissing their staff, while the employees will be guaranteed to receive payments from the state during this business interruption.
As soon as the quarantine is over, businesses will resume their activities while their employees will be able to return to their positions. In such a way, we will avoid situations where companies need to look for new employees again instead of keeping a team that has been working for many years while people suffer from unemployment.
At the same time, the law should provide for a mechanism that will make it impossible to receive the same assistance again after getting the unemployment allowance under this special procedure in the case of dismissal.
As for helping people in the so-called shadow segment, we can consider direct targeted monetary assistance. But this and further measures to combat the financial and economic crisis require additional funds.
In this case, we can obtain the support of the IMF, which announced its readiness to lend up to $1 trillion to other countries to overcome the economic effects of the coronavirus on Monday, March 16.
Getting help from large businesses does not seem like the worst idea either.
If the government officials agree, the experts are ready to get involved in the development of this mechanism as soon as possible.
The Better Regulation Delivery Office prepares proposals for short- and medium-term counter-cyclical measures to support the economy during the epidemiological and global economic crisis.
Source: Ekonomichna Pravda
BRDO is an independent regulatory policy advising institution in Ukraine, funded by the European Union under the FORBIZ project and within the framework of EU4Business Initiative.