Abstract
Purpose This paper aims to study the type of short-time work (STW) schemes implemented in Spain to preserve jobs and workers’ incomes during the COVID-19 crisis and the corresponding labour market outcomes. Design/methodology/approach A dynamic macroeconomic model of job creation and destruction of the search and matching type in a dual labour market. Findings The model shows that the availability of STW schemes does not necessarily prevent a large increase in unemployment and job destruction. The quantitative effects depend on the degree of subsidization of payroll taxes and on the design of the policy. A scenario with a moderate degree of subsidization and where the subsidy is independent of the reduction in hours worked is the least harmful for both welfare and fiscal deficit. The cost of such a strategy is a higher unemployment rate. Concerning heterogeneous effects, the unemployed are the ones who experience the strongest distributional changes. Originality/value The effectiveness of STW schemes in dual labour markets using a search and matching model in the context of the COVID-19 crisis has not been analysed elsewhere. The literature has emphasized the importance of dynamics, labour market institutions and workers’ heterogeneity to understand workforce adjustment decisions in the face of temporary shocks to de- mand especially when firms’ human capital is relevant. These elements are present in the model. In addition, this paper computes welfare and distributional effects and the cost of these policies.
Highlights
The COVID-19 crisis has been an unprecedented shock to all economies around the world
Contrary to what happened during the Great Recession, where the lack of internal flexibility together with the dual structure of the Spanish labour market led to the highest rates of unemployment and job destruction in the European Union (EU), the Spanish unemployment rate only increased by 2.5 percentage points during the first year of the pandemic
We have studied the type of short-time work (STW) schemes that have been implemented in Spain during to COVID-19 crisis
Summary
The COVID-19 crisis has been an unprecedented shock to all economies around the world. Contrary to what happened during the Great Recession, where the lack of internal flexibility together with the dual structure of the Spanish labour market led to the highest rates of unemployment and job destruction in the European Union (EU), the Spanish unemployment rate only increased by 2.5 percentage points during the first year of the pandemic. It is true that the unemployment rate has only experienced a modest rise, but this is partly due to the changes in the regulation of STW introduced in the 2009, 2010 and 2012 labour market reforms, to the generosity of the subsidies provided by these schemes and to the fact that many workers have left the labour force due to difficulties in finding jobs [2]
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