Labour Market Reallocation Effects of COVID-19 Policies in Spain: A Tale of two Recessions

Díaz, Antonia, Juan Dolado, Jañez, Alvaro and Felix Wellschmied
Authors registered in the RePEc Author Service: Alvaro Jañez and Antonia Díaz

No 18135, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies short-time work arrangements (ERTEs) when aggregate risk is partially sector-specific. In Spain, the Great Recession and the pandemic recession (aka the Great Contagion) can both be understood as being driven partially by large sector-specific shocks. However, the latter shows much less labor reallocation because ERTEs were available to firms. We show that ERTEs stabilize unemployment rates by allowing workers to remain with their employers in highly affected sectors. However, they crowd-out labor hoarding of employers, increase the volatility of the rate of people working and, consequently, of output, and slowdown worker reallocation away from the sectors badly hit by the recession.

Keywords: Worker turnover; Short-time work; Covid-19 (search for similar items in EconPapers)
JEL-codes: J11 J18 J21 (search for similar items in EconPapers)
Date: 2023-05
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Working Paper: Labour Market Reallocation Effects of COVID-19 Policies in Spain: A Tale of Two Recessions (2023)
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