How Effective were Job-Retention Schemes during the COVID-19 Pandemic? A Microsimulation Approach for European Countries

HowEffectivewereJob-RetentionSchemesduringtheCOVID-19Pandemic?AMicrosimulationApproachforEuropeanCountries W.RaphaelLamandAlexandraSolovyeva IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2023 JAN ©2023InternationalMonetaryFundWP/23/3 IMFWorkingPaper FiscalAffairsDepartment HowEffectivewereJob-RetentionSchemesduringtheCOVID-19Pandemic?AMicrosimulationApproachforEuropeanCountries PreparedbyW.RaphaelLamandAlexandraSolovyeva1 AuthorizedfordistributionbyPauloMedasJanuary2023 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT:TheCOVID-19pandemichadposedadramaticimpactonlabormarketsacrossEurope.Forcefulfiscalresponseshavepreventedanotherwisesharpercontraction.Manycountriesintroducedorexpandedjob-retentionschemestopreservejobsandsupporthouseholds.Thispaperusesamicrosimulationapproach(EUROMOD)andhouseholddatatoassesstheeffectivenessofthoseschemesinstabilizinghouseholdincomeduringthepandemicacrossEuropeancountries.Empiricalevidenceshowsthatjob-retentionschemeswereeffectiveinstabilizingincomeand,alongwithothermeasures,absorbednearly80percentofmarketincomeshocks—almostdoublingtheextentoftheautomaticstabilizationofthepre-pandemictaxandbenefitsystems.Thelargeeffectsarerelatedtothe widespreaduseandscalingupofthoseschemesandadeepbutshort-liveddisruptiontolabormarketsduringthepandemic.Alongwithotherfiscalsupportmeasures,job-retentionschemeshelpedmitigatetheriseinthe unemploymentrate,byabout3percentagepoints,andincomeinequalityduringthepandemic.Ourresultsshowthatjob-retentionschemeswerelargelytargeted,inwhichhouseholdsmorevulnerabletoincomelosses,suchaslower-incomefamilies,youth,andlow-skilledworkers,areabletostabilizetheirincome. RECOMMENDEDCITATION:Lam,W.RaphaelandSolovyeva,Alexandra.2023.HowEffectivewereJob-RetentionSchemesduringtheCOVID-19Pandemic?AMicrosimulationApproachforEuropeanCountries.IMFWorkingPaper23/3,InternationalMonetaryFund,WashingtonDC. JELClassificationNumbers: D1,D12,D31,D61;E2,E21,E24,E64,E65;H3,H31;J3,J6 Keywords: Job-retentionschemes;COVID-19pandemic;short-timework;inequality;incomestabilization;Okun’sLaw Author’sE-MailAddress: WLam@imf.org;ASolovyeva@imf.org 1TheauthorswouldliketothankVitorGaspar,PaoloMauro,PauloMedas,RicardoReis,CamilleLandais,AlbertoTumino,and participantsinIMF-FADseminarandJuly2022FiscalMonitorWorkshopfortheirconstructivecommentsandsuggestions.AndrewWomerandAndreVasquezprovidedexcellentresearchassistanceandeditorialsupport.ThepaperisbasedondatafromEurostat,2019EuropeanStatisticsonIncomeandLivingConditions(2018referenceyear).Theresponsibilityforallconclusionsdrawnfromthedataliesentirelywiththeauthors.TheresultspresentedinthepaperarebasedonEUROMODversionI4.0+.Originally maintained,developedandmanagedbytheInstituteforSocialandEconomicResearch(ISER),since2021EUROMODismaintained,developedandmanagedbytheJointResearchCentre(JRC)oftheEuropeanCommission,incollaborationwithEUROSTATandnationalteamsfromtheEUcountries.Weareindebtedtothemanypeoplewhohavecontributedtothe developmentofEUROMOD.ThereportisbasedondatafromEurostat2018-20. WORKINGPAPERS HowEffectivewereJob-RetentionSchemesDuringtheCOVID-19Pandemic?AMicrosimulation ApproachforEuropeanCountries PreparedbyW.RaphaelLamandAlexandraSolovyeva Contents I.INTRODUCTION3 II.IMPACTOFTHEPANDEMICONEULABORMARKETS4 III.DATAANDMETHODOLOGY8 IV.SIMULATIONRESULTS9 A.Incomestabilizationbeforethepandemic9 B.Incomestabilizationduringthepandemic11 C.Regressionanalysis16 V.POLICYIMPLICATIONSANDCONCLUSIONS17ANNEXI.SIMULATIONSOFSHOCKSINEUROMOD19REFERENCES20 FIGURES 1.LaborMarketDevelopmentsintheEuropeanUnionDuringtheCOVID-195 2.RelationshipbetweenOutputFluctuationsandLaborMarketDynamics7 3.EU-27:ChangesinUnemployment74IncomeStabilizationinEUbeforetheCOVID-19Pandemic,201910 5.SimulatedChangesinMarketandDisposableIncomesDuringthePandemic11 6.IncomeStabilizationaftertheCOVIDShock,byCountryandIncomeLevel12 7.CorrelationofSimulatedIncome13 8.IncomeStabilizationDuringthePandemicacrossHouseholds13 9.RedistributionEffectsofFiscalMeasuresDuringthePandemic14 10.SimulatedIncomeStabilizationCoefficientsbyWorkerGroupsandSectors15 TABLES 1.FeaturesofJob-RetentionSchemesinSelectedEuropeanCountriesDuringtheCOVID-19Pandemic6 2.RegressionResultsonDifferencesofIncomeStabilizationacrossEUHouseholds17 I.Introduction TheCOVID-19pandemicgeneratedwidespreadeconomicdisruptionsandconsequentlyledtoasharpdeteriorationinlabormarketsacrossEurope.Despiteadramaticeconomiccontraction,theimpacton employmentappearedtobemuted,withemploymentrateremainingat0.7percentagepointsbelowthepre-crisislevels,faraboveprojectionsbasedonthepre-pandemicrelationshipbetweenoutputgrowthandunemployment(Okun’srelatio