Labor reallocation effects of furlought schemes: evidence from two recessions in Spain

Antonia Díaz, Juan Dolado, Alvaro Jáñez and Felix Wellschmied
Additional contact information
Antonia Díaz: Instituto Complutense de Análisis Económico (ICAE), Universidad Complutense de Madrid (Spain).
Alvaro Jáñez: Universidad Carlos III de Madrid, Departamento de Economía.
Authors registered in the RePEc Author Service: Antonia Díaz

No 2024-01, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: We examine the impact of furlough schemes in scenarios where aggregate risk has a sector-specific component and workers have sector-specific human capital. In particular, we investigate the distinct responses of the Spanish labor market to the Great Recession and the Great Contagion as both downturns have been triggered by such shocks. However, the COVID-19 episode involves much less job destruction than the previous recession, possibly due to firms’ widespread adoption of furlough schemes (ERTEs) which had been seldom activated earlier. There is consensus that these policies help stabilize the unemployment rate by keeping matches alive in those sectors hardest hit by a crisis. However, under their current design, we argue both empirically and theoretically that ERTEs: (i) crowd out labor hoarding by employers in the absence of those schemes, (ii) increase the volatility of effective working rates and output, and (iii) hinder worker reallocation, especially in short recessions.

Keywords: Strategy-Proofness; Single-Peaked Preferences; Social Choice Correspondences. (search for similar items in EconPapers)
JEL-codes: J11 J18 J21 J64 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2024
New Economics Papers: this item is included in nep-ltv
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Citations: View citations in EconPapers (1)

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https://hdl.handle.net/20.500.14352/102261

Related works:
Journal Article: Labor reallocation effects of furlough schemes: Evidence from two recessions in Spain (2025)
Working Paper: Labor Reallocation Effects of Furlough Schemes: Evidence from Two Recessions in Spain (2024)
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