Job retention schemes between the Great Recession and the COVID-19 crises. Does the institutional design affect the take up?

Summary:

Should we make SURE a permanent instrument? To answer this, one might look at whether SURE – as a loans-based financial instrument – has been effectively taken up by Member States and used to support Job Retention (JR) schemes and other similar measures.

Using the loan, however, is not enough to assess its effectiveness if the financed JR schemes have not been useful in cushioning unemployment caused by the pandemic. SURE did not come with any conditions attached regarding the design of the JR schemes. And yet there is considerable institutional variation in job retention programmes across Europe. This affects their efficiency, as well as their direct effect on unemployment. A badly designed JR scheme risks the misallocation of resources, ‘moral hazard’ (i.e. firms and workers partially internalising the costs of excessive use of the schemes) and adverse selection (i.e. support for firms that aren’t able to maintain the employment contract once the crisis is over).

While empirical studies have been conducted on the role of JR schemes in mitigating unemployment and bolstering domestic demand, looking at individual countries or a subset of countries, no study – at least to our knowledge – has systematically examined how the design of these schemes impacted their actual take up.

This publication tries to fill this gap by providing a first illustration of how the design of JR protection schemes impacted their use across the EU27 countries, both during the Great Recession and the COVID-19 (coronavirus) pandemic. The study finds that take up is significantly affected by each of the following institutional dimensions: scope, the financing system, generosity, and the permanent nature of the scheme. It concludes that any possibility of a ‘SURE 2.0’ cannot come without a reflection on introducing more stringent positive conditions when designing future JR schemes.

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