provisional allowances (ECIJA, 2020). Moreover, several countries have acted to support freelance workers and the self-employed. Relatively few actions have focused on informal workers (Table C.1).
Table C.1
Support for non-standard and vulnerable workers in the pandemic: Income replacement and support measures in EU Member States
Source: OECD (2020a).
Note: 1 Includes lump sum or temporary income replacement schemes; 2 access relative to standard workers assessed on the basis of the gap in the probability of benefit accessibility.
The pandemic is affecting social protection systems in the short term and may have long-term effects. Some of the measures introduced to protect workers are temporary, such as support for the self-employed via lump sum transfers, “employer salaries” or sectoral aid packages (such as for hospitality and the arts and entertainment). Other changes, for example improved access to benefits for temporary or part-time workers, might become permanent. They could be a step towards a gradual “update” of social protection systems to respond to more structural shifts in employment patterns linked to factors including developments following the global financial crisis and digitalisation. Closing some gaps could help to address the issue of rising inequalities that predated the pandemic, and prevent a further widening in its aftermath.
For housing, measures such as eviction suspensions or payment moratoriums are temporary and geared towards protecting vulnerable parts of the population. However, the pandemic has increased awareness of imbalances in this area. Inequalities in access to affordable, quality housing have widened in recent years, with rising housing costs contributing to the financial vulnerability of many households. Demand for housing is widely expected to receive a structural boost from the pandemic. Against this background, housing policy measures aiming to improve supply and guarantee well-functioning housing markets remain a key area for addressing inequalities.
Box D
How significant are the benefits of short-time working schemes for firms?
Participation in short-time work (STW) increased sharply as economic activity collapsed in the second quarter of 2020. STW schemes are part of a series of measures that provide support to firms (such as grants, equity injections, and loan guarantees) and households. At the end of May 2020, about one-third of employees participated in STW schemes in Austria, France and the Netherlands, and one-fifth in Germany, Spain and Ireland (OECD, 2020c). As economies recovered, participation declined (Figure D.1).
Figure D.1
Participation in short-time working schemes peaked during the lockdowns, percentage of employees
Source: For total employment (2019), OECD (2020b). Country-specific sources are Nombre de salaries effectivement places en activité partielle; DARES (2020), Situation sur le marché du travail durant la crise sanitaire au 29 septembre 2020 for France; Empfänger von Kurzarbeitergeld, Bundesagentur für Arbeit (2020), Monatsbericht zum Arbeits- und Ausbildungsmarkt, September for Germany; Personas incluidas en un Expediente de Regulación Temporal de Empleo (ERTE), end of month, Gobierno de Espana (2020), Afliliacion a al seguridad social, Balance mensual de la afiliación, 2 October for Spain; N. salariali Covid-19 erogate direttamente dall’INPS (CIGO, fondi di solidarieta, CIGD), Instituto Nazionale Previdenza Sociale (2020): “Integrazioni salariali Covid-19 erogate direttamente da INPS,” 1 ottobre for Italy.
The benefit that a firm derives from an STW scheme depends on how it would have behaved had the scheme not been offered. A key question is whether a firm only retained staff because it participated in the scheme or whether it would have retained the staff anyway. One factor influencing a firm’s response is the availability and cost of other mechanisms for adjusting its payroll. A firm operating under stringent employment protection laws and with contracts allowing it to adjust the number of employee hours might have retained staff even in the absence of the STW scheme. The same might be true of a firm employing highly skilled staff that are expensive to re-hire.
The evidence for firms’ response to STW schemes is mixed.[3] At the macroeconomic level, STW schemes appear to have helped avoid layoffs by increasing flexibility in the number of hours worked (Abraham and Houseman, 1994; Arpaia et al., 2010). From a microeconomic perspective, the effect of STW schemes is more difficult to demonstrate, not least because firms that have other ways of adjusting their payroll are less likely to adopt STW schemes (see Lydon et al., 2019 for evidence). For example, Kruppe and Scholz (2014) find that German firms participating in STW schemes during the 2007-2009 crisis reduced their headcount by about the same amount as those not participating. Against this background, we discuss the benefit of STW schemes for two scenarios representing firms at the opposite ends of the spectrum.
For firms that participate in the STW scheme but would have retained and paid in full their employees even in the absence of the scheme, the benefit is equal to the scheme’s transfers. A rough estimate of these transfers is the share of wages replaced by the STW schemes. This varies by country. For most, it is around 50% to 80% of the wages that employees lose because their working hours are reduced (Mueller and Schulten, 2020). The transfer is also reflected in institutional sector accounts. The drop in employee compensation raised entrepreneurial income growth in the second quarter of 2020 even more than during the financial crisis in 2009 (Figure D.2).
Figure D.2
Falling employee compensation added to entrepreneurial income
Source: Eurostat and EIB staff calculations.
For firms that would have laid off staff without the scheme, the benefit is about equal to the frictional costs of firing existing employees and hiring replacements once demand picks up again. Assume that if the firm had laid off staff, its salary payment would have fallen by the same amount that it receives in transfers when participating in the STW scheme and retaining its staff. In that case, participation in the scheme only saves the costs associated with firing and re-hiring employees. These costs, however, can be substantial. Estimates come in at about half of a worker’s annual salary, with significant variations across jobs and countries. Firing costs are typically in the range of one to five months of salary for OECD countries, depending on job tenure and the circumstances of dismissal (OECD, 2020b). Hiring costs, for recruitment and training, greatly depend on the position to be filled. Muehlemann et al. (2016) find that hiring costs are about two months’ salary for skilled German workers, while Blatter et al. (2012) estimate the costs at about three to four months’ salary for skilled Swiss workers, ranging from about one month for a medical assistant to six months for an automation technician. The bulk of these costs are associated with training (see also Manning, 2011, for an overview).
Aside from these direct effects, STW schemes are likely to generate indirect benefits for firms by stimulating aggregate demand. Like other schemes that insure against a sudden decline in income, STW schemes transfer funds to cash-constrained firms and households, whose marginal propensity to spend is likely to be higher than that of those funding the transfers. As a result, aggregate demand
