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

January 13, 2023

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Format: Chicago

W. Raphael Lam, and Alexandra Solovyeva. How Effective were Job-Retention Schemes during the COVID-19 Pandemic? A Microsimulation Approach for European Countries, (USA: International Monetary Fund, 2023) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The COVID-19 pandemic had posed a dramatic impact on labor markets across Europe. Forceful fiscal responses have prevented an otherwise sharper contraction. Many countries introduced or expanded job-retention schemes to preserve jobs and support households. This paper uses a microsimulation approach (EUROMOD) and household data to assess the effectiveness of those schemes in stabilizing household income during the pandemic across European countries. Empirical evidence shows that job-retention schemes were effective in stabilizing income and, along with other measures, absorbed nearly 80 percent of market income shocks—almost doubling the extent of the automatic stabilization of the pre-pandemic tax and benefit systems. The large effects are related to the widespread use and scaling up of those schemes and a deep but short-lived disruption to labor markets during the pandemic. Along with other fiscal support measures, job-retention schemes helped mitigate the rise in the unemployment rate, by about 3 percentage points, and income inequality during the pandemic. Our results show that job-retention schemes were largely targeted, in which households more vulnerable to income losses, such as lower-income families, youth, and low-skilled workers, are able to stabilize their income.

Subject: Economic sectors, Financial crises

Keywords: COVID-19 pandemic, Income stabilization, Inequality, Job-retention schemes, Okun’s Law, Short-time work

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/003
Stock No:

WPIEA2023003
ISBN:

9798400229985
ISSN:

1018-5941

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