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

W. Raphael Lam and Alexandra Solovyeva

No 2023/003, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Job-retention schemes; COVID-19 pandemic; short-time work; inequality; income stabilization; Okun’s Law; job-retention scheme; stabilization in EU; EU household; stabilization coefficient; Income; COVID-19; Labor markets; Income shocks; Unemployment; Global; Europe (search for similar items in EconPapers)
Pages: 24
Date: 2023-01-13
New Economics Papers: this item is included in nep-eur and nep-lab
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