The Economic Paradox Of The “Post-COVID” Recovery

The current economic recovery is unlike any other in the labor market. For companies in the United States and Europe, recruitment is particularly tough. Resignations are exploding on both sides of the Atlantic and productivity is declining in places like France. These are all paradoxes confounding economists.

photo of a construction worker in Dublin walking away

A construction worker in Dublin

Guillaume de Calignon

PARIS — This is the great upheaval. COVID-19 has disrupted the balance of the labor market in Europe and the United States. As a result, the speed of the rebound in activity is like no other. In the Eurozone single currency market, the unemployment rate, which had already fallen to 7.5% in August, has nearly reached the level it had at the end of 2019. But this atypical recovery still leaves many questions that economists struggle to answer.

The first paradox is that, on both sides of the Atlantic, companies say they are having trouble finding people to hire. An anomaly in periods of economic recovery, since it normally takes time for the rise in unemployment to subside before the first recruitment difficulties appear.

Skyrocketing job vacancies

These troubles are, however, more acute in the U.S. With the reopening of the economy, American companies, which have laid off employees — unlike European ones who have been able to keep them thanks to partial unemployment benefits programs — have a pressing need for labor, especially in services. In Europe, it is primarily the countries of the North, such as the Netherlands, that face the greatest difficulties.

Moreover, in the United States, there were more than 10 million job advertisements last month, less than the total number of unemployed workers. For every job available, there are currently 0.8 unemployed people. In Europe, the job vacancy rate has returned to the level it was at the end of 2019, close to its all-time high.

Almost everywhere, it is the labor reallocation problems that explain the continued strong tension in the labor market. Hence the efforts of training that were launched in France and in other countries. These difficulties are exacerbated by the fact that some people have left the labor market.

An estimated 1.3 million Americans will return to the workforce with the end of unemployment benefits

Michael Nagle/Xinhua/ZUMA

1.3 million set to return to work

In the United States, for example, the participation rate remains 5 points below its pre-crisis level. "We have seen a sharp drop in the number of retirees who wanted to work in the United States. Not all will return to the job market," warns Anton Brender, chief economist at Candriam.

Immigrants with odd jobs had to leave and the employment rate for women fell, partly because some schools remained closed for a year and a half and mothers tend to be the primary caregiver and educator. It is, therefore, possible that the reopening of schools will bring some Americans back into the workforce.

Some question themselves, which can lead them to settle for less.

The end of exceptional unemployment benefits earlier this month should also push people to look for work. Goldman Sachs estimates that 1.3 million Americans will return to the workforce with the end of unemployment benefits. If this is the case, the recruitment difficulties are bound to ease.

"Historically, one of the most important consequences of pandemics is the decline in the working population," says Mathilde Lemoine, chief economist of the Edmond de Rothschild Group. "Out of caution, people are withdrawing from the labor market. Subsequently, given the brutality of the shock, some people question themselves, which can lead them to settle for less, to work less or to embark on personal projects. This is what we saw with the leap in business start-ups during COVID. "

Resignations: A domino effect 

The second paradox is that since last March and the reopening of economic activity, 500,000 more Americans than in 2019 are resigning from their jobs every month. This has never been seen at the end of a crisis. It is possible that people no longer want to work in the same sector, such as restaurants for example.

The other, more plausible explanation is put forward by Gero Jung, the chief economist of Mirabaud Asset Management: "People are quitting their jobs in the United States because they hope to find something better elsewhere, whether it is higher wages or better working conditions."

The final paradox is only valid for France: the number of jobs was, at the end of June, higher than its pre-crisis level, while the GDP remained 2 to 3 points lower than in the final quarter of 2019. Productivity per capita has therefore fallen whereas it usually tends to increase at the end of a crisis. Job creation, indeed, may already begin slowing down next year.

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Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum


SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.

It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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