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

Author

Listed:
  • Diaz, Antonia

  • Dolado, Juan J.

    (Universidad Carlos III de Madrid)

  • Jáñez, Álvaro

    (Stockholm School of Economics)

  • Wellschmied, Felix

    (Universidad Carlos III de Madrid)

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 slow-down worker reallocation away from the sectors badly hit by the recession.

Suggested Citation

  • Diaz, Antonia & Dolado, Juan J. & Jáñez, Álvaro & Wellschmied, Felix, 2023. "Labour Market Reallocation Effects of COVID-19 Policies in Spain: A Tale of Two Recessions," IZA Discussion Papers 16095, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp16095
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    References listed on IDEAS

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    Cited by:

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    2. Cahuc, Pierre, 2024. "The Micro and Macro Economics of Short-Time Work," CEPR Discussion Papers 19429, C.E.P.R. Discussion Papers.

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    Keywords

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    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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