The undifferentiated granting of technical unemployment benefits encouraged the suspension of employment contracts

Only a few days after the onset of the state of emergency, by G.E.O. no. 30/2020 published on March 21st, 2020, the State’s payment of technical unemployment was ordered, for employees whose employment contracts have been suspended. The maximum gross limit settled by the State was Lei 4,071.

The measure, applied indiscriminately, had the effect of stimulating companies, even those whose activity was not significantly affected, to suspend employment contracts. Thus, in just a few days after its approval, the number of suspended employment contracts increased by hundreds of thousands, reaching in a few weeks about one million suspended employment contracts.

During the state of emergency there were five major categories of companies:

  • those whose activity has been objectively completely suspended, as a result of restrictions imposed by the authorities (e.g., trade in shopping mall)
  • those whose activity has been significantly affected (e.g., activities in the hospitality industry)
  • those whose activity has been affected in an insignificant proportion
  • those whose activity has not been affected (e.g., IT industry)
  • and those whose activity was stimulated and who have hired during the state of emergency (e.g., online trade, food trade, courier companies, etc.).

There are many companies whose activity could have continued, but they preferred to suspend a large part of the employees’ employment contracts as a precaution, given the unemployment benefit paid by the State. Thus, the allowance served as an incentive to increase the number of unemployed. Instead of encouraging to create jobs and to stimulate companies to identify measures for continuing working, the State preferred to stimulate the suspension of a large number of employment contracts, by indiscriminately applying the measure of technical unemployment.

If the technical unemployment measure had been applied differently, only to those companies that are really entitled to receive help during state of medical emergency, the amounts that would have remained in the State’s budget could have been used to pay part of the basic salary for new employees during state of emergency.