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Job retention schemes saved close to 27 million jobs during the pandemic
Job retention schemes, one of the main policy tools used during the COVID-19 pandemic to safeguard jobs and protect incomes, saved 26.9 million jobs in the EU in 2020 and 2021.The schemes also reduced inequality by 0.15 percentage points, and lowered the at-risk-of-poverty rate by 0.5 percentage points.
Eurofound’s new report Weathering the crisis: How job retention schemes preserved employment and incomes during the pandemic details the implementation and changing features of job retention schemes in the EU between 2020 and 2022.
The report shows that, following an initial period during which job retention schemes underwent numerous changes in their eligibility and conditionality criteria, the institutional features of job retention schemes stabilised as the pandemic progressed. While some of the schemes expired with the end of the pandemic, others were transformed into permanent institutions of the labour market.
The job retention schemes utilised in 2020 and 2021 were born out of two significant initiatives deployed in the aftermath of the outbreak of the pandemic: the Coronavirus Response Investment Initiatives, which allowed Member States to mobilise up to €8 billion of immediate liquidity and to accelerate up to €37 billion of EU public investment; and the Support to mitigate Unemployment Risks in an Emergency (SURE) mechanism, which allowed the Commission to borrow up to €100 billion under favourable terms and distribute funds to Member States for employment retention.
Although income support for self-employed workers was an unprecedented feature of the response, the scale and level of support granted to them remained below that offered to employees, and varied between Member States.
Large labour markets, including those in France, Germany, Italy, the Netherlands and Spain, accounted for more than 80% of jobs saved in the EU during 2020. The schemes cushioned the impact of COVID-19 on household incomes, particularly in 2020, with their smaller contribution to the protection of household incomes throughout 2021 explained by lower take-up rates during the incipient recovery phase. In many countries, the schemes provided a lifeline to both dependent employees and the self-employed throughout both years.
Together with social benefits and direct taxes, job retention schemes absorbed 74.4% of the shock on disposable incomes in 2020 and 67.1% in 2021; the main instruments that absorbed the effect of the pandemic on income were taxes and social insurance contributions, accounting for 26.4%. Lower taxable income and lower tax liabilities combined with the progressive taxation schemes in some countries helped to soften the burden of social insurance contributions.
On average, at EU level, the income-cushioning effect of the interventions was 20 percentage points greater for the bottom quintile of the income distribution than for the top quintile. This effect was driven by design features of job retention schemes such as income thresholds and replacement rates, suggesting that job retention schemes correctly targeted groups most in need of support.
The broad economic role of job retention schemes is reflected in poverty and inequality indicators: on average, in 2021, job retention schemes reduced inequality by an estimated 0.15 percentage points while also reducing the at-risk-of-poverty rate by 0.5 percentage points.
The report concludes that job retention schemes are temporary yet effective policy interventions that can be deployed during crises to preserve employment and incomes, with their overall effectiveness depending on flexible conditionality and eligibility criteria. This needs to be adjusted to reflect labour market needs and avoid deadweight effects.
