Labor Market Duality and Unequal Protection: Evidence from the COVID-19 Shock

Formally universal labor protection policies may generate unequal outcomes when implemented in segmented labor markets. This paper studies how labor market duality shapes access to protection during large economic shocks, using the COVID-19 pandemic in Spain as an unexpected stress test. We combine administrative microdata with detailed information on employment transitions to examine workers’ access to two distinct protection channels: job retention schemes (JRS) and unemployment-related protection. We show that unequal protection during the pandemic operated through two different institutional mechanisms. First, disparities in access to JRS are largely explained by labor market duality. Once contract type and job tenure are taken into account, age-related differences disappear or reverse, indicating that lower coverage among young workers mainly reflects composition effects rather than differential treatment within the scheme. Second, unequal access to unemployment-related protection persists even after controlling for contractual status and tenure. However, this gap is largely absorbed once accumulated labor market experience is taken into account, showing that contribution histories rather than age per se are the main source of disadvantage. Overall, the results show that labor market duality weakens the insurance role of the welfare state during economic crises. More broadly, the paper highlights that the distributional impact of formally universal protection policies depends crucially on the institutional channel through which protection is delivered.