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Temporary layoffs, short-time work and COVID-19: the case of a dual labour market

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  • Victoria Osuna
  • José Ignacio García Pérez

Abstract

Purpose - This paper aims to study the type of short-time work (STW) schemes implemented in Spain to preserve jobs and workers’ incomes during the COVID-19 crisis and the corresponding labour market outcomes. Design/methodology/approach - A dynamic macroeconomic model of job creation and destruction of the search and matching type in a dual labour market. Findings - The model shows that the availability of STW schemes does not necessarily prevent a large increase in unemployment and job destruction. The quantitative effects depend on the degree of subsidization of payroll taxes and on the design of the policy. A scenario with a moderate degree of subsidization and where the subsidy is independent of the reduction in hours worked is the least harmful for both welfare and fiscal deficit. The cost of such a strategy is a higher unemployment rate. Concerning heterogeneous effects, the unemployed are the ones who experience the strongest distributional changes. Originality/value - The effectiveness of STW schemes in dual labour markets using a search and matching model in the context of the COVID-19 crisis has not been analysed elsewhere. The literature has emphasized the importance of dynamics, labour market institutions and workers’ heterogeneity to understand workforce adjustment decisions in the face of temporary shocks to de- mand especially when firms’ human capital is relevant. These elements are present in the model. In addition, this paper computes welfare and distributional effects and the cost of these policies.

Suggested Citation

  • Victoria Osuna & José Ignacio García Pérez, 2021. "Temporary layoffs, short-time work and COVID-19: the case of a dual labour market," Applied Economic Analysis, Emerald Group Publishing Limited, vol. 30(90), pages 248-262, December.
    • Handle: RePEc:eme:aeapps:aea-06-2021-0118
    DOI: 10.1108/AEA-06-2021-0118
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    Citations

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    Cited by:

    1. Porras-Arena, M. Sylvina & Martín-Román, Ángel L. & Dueñas Fernández, Diego & Llorente Heras, Raquel, 2022. "Okun’s Law: The effects of the COVID-19 pandemic and the temporary layoffs procedures (ERTE) on Spanish regions," MPRA Paper 115530, University Library of Munich, Germany.
    2. Garcia-Clemente, J. & Rubino, N. & Congregado, E., 2023. "Reemployment premium effect of furlough programs: evaluating Spain's scheme during the COVID-19 crisis," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 57, pages 1-17.
    3. Peltonen, Juho, 2023. "Short-time work in search and matching models: Evidence from Germany during the Covid-19 crisis," MPRA Paper 119238, University Library of Munich, Germany.
    4. Weziak-Bialowolska, Dorota & Lee, Matthew T. & Cowden, Richard G. & Bialowolski, Piotr & Chen, Ying & VanderWeele, Tyler J. & McNeely, Eileen, 2023. "Psychological caring climate at work, mental health, well-being, and work-related outcomes: Evidence from a longitudinal study and health insurance data," Social Science & Medicine, Elsevier, vol. 323(C).
    5. Liang, Xiao & Rozelle, Scott & Yi, Hongmei, 2022. "The impact of COVID-19 on employment and income of vocational graduates in China: Evidence from surveys in January and July 2020," China Economic Review, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    Welfare; Unemployment; Duality; Short-time work; Temporary layoffs;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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