Alexander Hijzen
Gabrielle De Haan-Montes
Mateo Montenegro
Sandra Nevoux
Agnès Puymoyen
Preparing ERTE for the Future
An Evaluation of Job Retention Support in Spain During the COVID-19 Pandemic
Abstract
This chapter provides an introduction to the job retention schemes in Spain as well as in France, Germany and Italy. It discusses their origins, their evolution over time as well as its main design features. Each of these schemes represent short-time work schemes (STW) which directly subsidise hours not worked.
This chapter provides a first introduction to the Spanish job retention scheme, Expedientes de Regulación Temporal de Empleo (ERTE) as well as its counterparts in Germany (Kurzarbeit), France (Activité Partielle) and Italy (Cassa Integrazione Guadagni). It focuses on the origins of the schemes, their way they evolved over time as well as their main design features. Each of these schemes represent short-time work schemes (STW) which directly subsidise hours not worked.
STW has existed for decades in each of the four countries but the way in which these measures developed and were used differed considerably. In Spain, STW was deployed on a significant scale for the first time during the COVID‑19 crisis, after a number of reforms expanded its applicability and accessibility. While in France STW was more established, it also remained underutilised until the COVID‑19 crisis. This stands in sharp contrast to Germany and Italy, where STW measures were widely used prior to the pandemic. The German scheme in particular has long played a key role in supporting the resilience of the labour market in the face of economic downturns.
In response to the COVID‑19 crisis, STW schemes in these four countries were redesigned to minimise job losses by expanding eligibility, increasing their generosity and facilitating access. While significant differences in the design of these schemes remain, they have tended to converge towards the German model in the sense that they can be scaled up quickly in response to a sharp economic downturn and phased out as the economy recovers. For Spain in particular, the crisis presented an opportunity to fulfil its ambition since the global financial crisis to establish a STW scheme that can effectively support labour market resilience during an economic downturn.
Job retention (JR) schemes seek to preserve jobs at firms experiencing a temporary decline in business activity by reducing their labour costs and supporting the incomes of workers whose hours are cut back. While there are important differences in their design and implementation across countries, a crucial aspect of all JR schemes is that employees’ contracts remain in force even if their work is fully suspended (Hijzen, Salvatori and Puymoyen, 2021[1]).
Traditionally, job retention schemes have tended to take the form of short-time work schemes that directly subsidise hours not worked. The best-known example is Germany where short-time has been around for a long time and has played an important role in supporting labour market resilience. However, many other European countries have long experience with short-time work schemes.
The objective of this chapter is to provide a first introduction to the Spanish short-time work scheme, Expedientes de Regulación Temporal de Empleo (ERTE) as well as its counterparts in Germany (Kurzarbeit), France (Activité Partielle) and Italy (Cassa Integrazione Guadagni). In contrast to Spain, where the use of short-time work is relatively recent, these countries tend to have relatively long traditions with short-time work.
While the main focus of the chapter is on the period until the end of 2021, it also discusses the Spanish labour market reform of December 2021 and the subsequent introduction of the RED mechanism in April 2022 that allows for a simplified and more generous version of ERTE in the framework of a national agreement by the social partners that is validated by the government.
As the COVID‑19 crisis began, OECD countries took significant steps to ensure that STW schemes provided timely and broad-based support for firms and workers affected by social-distancing restrictions (Hijzen, Salvatori and Puymoyen, 2021[1]). In Germany, Italy, France and Spain, pre‑existing schemes were adjusted to cope with the crisis by simplifying access, extending coverage and increasing generosity. This contributed to record high levels of STW take‑up (Figure 2.1), preventing a surge in unemployment and rising financial hardship among workers and their families. At its peak in April-May 2020, STW schemes supported over 23.5 million jobs across Germany, Italy, France and Spain or about a quarter of employment. The use of STW has declined gradually since reaching its peak. As of July 2022, the use of STW was negligible in all four countries and close to its level before the start of the COVID‑19 crisis.
The use of STW during the COVID‑19 crisis was much larger than during any previous crisis period, and much more pervasive across countries. At the peak of the global financial crisis of 2008‑09, STW supported roughly 2.2 million jobs (Hijzen and Venn, 2011[2]), less than a tenth of the jobs supported at the peak of the recent crisis in April-May 2020. Moreover, while take‑up was significant in Germany and Italy, surpassing 4% and 7% respectively, it played a limited or even negligible role in France and Spain. In addition, whereas in Germany the use of STW returned to its pre‑crisis level within two years of reaching its peak during the global financial crisis, in Italy this took around ten years and, as a consequence, take‑up had only barely returned to its pre‑crisis level when the COVID‑19 crisis hit.
These differences in the use of STW during the global financial crisis reflect important differences in the evolution and design of STW provisions. During the global financial crisis, only Germany had a pre‑existing scheme that was easy to adjust and deploy, while Italy took steps to increase coverage and facilitate access. The schemes in France and Spain by contrast remained harder to access, with lengthy application procedures hindering a high uptake. The mixed experience with STW during the global financial crisis motivated several reforms to their design and shaped the policy response to the COVID‑19 crisis. As a result, STW schemes are today more similar in their operation than during the global financial crisis.
Percentage of dependent employment, January 2007 – December 2022
Note: Italy: Data before 2018 are based on the number of authorised hours (estimated number of employees using the ratio of the total hours authorised under the quarterly average hours worked by employee), and spliced using the actual number of participants from January 2018. Spain: Data are not available from October 2010 to February 2020.
Source: National sources.
In Germany, STW schemes have a long history in labour market policy. STW was originally established in 1910 but has significantly evolved since. Today, Germany has three STW schemes that are used to prevent job losses or support employment in different circumstances: temporary economic downturns (Konjunkturelle‑Kurzarbeit or cyclical STW); unfavourable meteorological conditions (Saison-Kurzarbeit or seasonal STW); and re‑structuring measures at the industry or firm level (Transfer-Kurzarbeit or structural STW).1 STW is administered by the Federal Employment Agency (Bundesagentur für Arbeit – BA) and financed through social security contributions for unemployment insurance.
The main features of Konjunkturelle Kurzarbeit as it operates today were defined in a major reform in 1997. All private firms incurring a 10% loss of activity due to economic reasons are eligible, as are workers with an open-ended contract who meet the minimum contribution requirements for unemployment benefits. To implement STW, at least one‑third of workers have to reduce their hours. Workers receive 53% of average gross wages for hours not worked (60% of net wages), with a more generous allowance for workers with children (67% of net wages), financed through unemployment insurance contributions. Both employers and employees typically continue to pay social security contributions for hours not worked, but not always their full amount. The standard maximum duration is six months. Training while on STW is allowed. The consent of the worker or work council is required to implement STW and collective agreements often top-up the benefits that workers on reduced working hours receive.
During major economic crises, several features of Konjunkturelle Kurzarbeit tend to be temporarily adjusted to increase its uptake. During the global financial crisis and the COVID‑19 crisis, worker eligibility was extended to workers on temporary contracts (with some conditions), the work-sharing rule, stipulating that one‑third of workers need to have their hours reduced, was relaxed (global financial crisis: removed entirely; COVID‑19: reduced to 10%), and the maximum duration of support was increased to 24 months. Moreover, employer social security contributions were reduced (global financial crisis: 50% during the first six months, 100% thereafter; COVID‑19: 0%, 50% after January 2022). The net replacement rate of 60% for workers (67% for workers with children) was increased to 70% (77%) beyond four months on STW and 80% (87%) beyond seven months. Training while on STW was actively encouraged through greater exemptions from social security contributions and, recently, by the reimbursement of training costs. In addition, during both crises, the application procedure was simplified to facilitate uptake.
Take‑up of Kurzarbeit in Germany was amongst the highest across the OECD during the global financial crisis, with more than 4% of all employees in the scheme at the height of the crisis in 2009. STW contributed to the exceptional resilience of the German labour market during the 2008‑09 crisis, with up to 580 000 jobs saved (Hijzen and Martin, 2013[3]).2 STW take‑up at the onset of the pandemic was significantly higher than observed at the height of the global financial crisis, with circa 15% of workers in Germany covered by the scheme in April 2020, close to the OECD average, but lower than in the three other countries considered here. The success of Kurzarbeit during the global financial crisis has prompted several other countries, including France and Spain, to reform their STW schemes based on the German model.
In Italy, STW provisions have proliferated to encompass a number of distinct but complementary schemes that aim to protect employees facing a reduction or suspension of work: 1) Cassa Integrazione Guadagni Ordinaria (CIGO, created in 1947), which supports construction and manufacturing firms during economic downturns and other unforeseen unfavourable situations (e.g. meteorological conditions); 2) Cassa Integrazione Guadagni Straordinaria (CIGS, created in 1968), which supports large and medium-sized private‑sector firms (more than 15 employees in manufacturing and construction, more than 50 otherwise) in making structural adjustments and reconversion processes; 3) Cassa Integrazione Guadagni in Deroga (CIGD, temporarily introduced between 2009‑15 and 2020‑present), a temporary scheme, instituted in response to the global financial and the COVID‑19 crises, that extends coverage to all firms irrespective of their sector or size; and 4) Fondi di Solidarietà Bilaterali (FSB, created in 2015) and Fondi d’Integrazione Salariale (FIS, created in 2016), complementary measures that support small firms in a sector at the request of social partners (FSB for firms with more than five employees, FIS for firms with less).
The design of these different schemes is broadly similar. The maximum duration of support varies between 12‑24 months depending on the reason for STW. All workers, except managers, are eligible. Workers are entitled to 80% of previous gross earnings for hours not worked with a low benefit ceiling (about 50% of the average wage). Benefits are generally paid to firms but can also be paid to workers in case of financial difficulties. Employers were fully exempt from social security contributions until the introduction of the Jobs Act in 2015 (Act no. 148/2015). Training for workers remains optional and is not incentivised, in contrast to Germany and France. For CIGO, eligibility and generosity are increased through sectoral collective agreements, similarly to Germany and France. CIG, FSB and FIS are administered in separate funds by the National Institute for Social Security (Instituto Nazionale della Previdenza Social – INPS) and financed through social security contributions for unemployment insurance.
Compared to Germany, France and Spain, Italy stood out as the country where the use of STW was most persistent. Similar to Germany, STW played a crucial role in mitigating job losses during the global financial crisis, covering more than 7% of the workforce at its peak and saving an estimated 130 000 jobs (Hijzen and Martin, 2013[3]). But, whereas in Germany the use of STW returned to its pre‑crisis level within two years from reaching its peak during the global financial crisis, in Italy this took around ten years to do so, and it had barely returned to its pre‑crisis level when the COVID‑19 pandemic hit (Figure 2.1). The use of STW surged to 32% in response to COVID‑19, well above the level for the OECD average, partially due to the ban on layoffs introduced in response to the crisis. Since reaching its peak in May 2020, the use of STW has declined sharply, following a similar pattern as observed in the other three countries considered in this chapter.
The persistent use of STW in the aftermath of the global financial crisis in Italy most likely reflects a combination of factors, in particular the absence of significant restrictions on the use of STW and a certain reluctance on the side of employers to lay off workers in a context where unemployment support was limited (e.g. economic dismissals were not entitled to severance pay, a universal unemployment insurance system did not exist). This situation changed with the Jobs Act in 2015, which restricted the use of STW by shortening its maximum duration, particularly for workers on zero hours, and by increasing the use of co-financing by firms for the costs of hours not worked. At the same time, the Jobs Act may have increased the social acceptability of economic layoffs by introducing tenure‑dependent severance pay and paving the way for the introduction of a broader and more modern unemployment insurance system. This is consistent with the evolution of STW take‑up which declined more quickly after 2015 compared to the preceding period.
The French Activité Partielle was initially conceived as a work-sharing scheme to help firms face unforeseeable shocks and cushion their effects on employment and earnings, in a similar fashion as the German scheme. However, while the German Kurzarbeit began as a government provision, the French STW scheme originated as a private insurance mechanism against external shocks whereby individual firms would put aside funds for use during periods of crisis. Eventually legislated in 1951, STW was made available to the majority of private establishments and their employees, either for temporary economic reasons, “force majeure” motives or to address more structural problems. It offered a 50% replacement rate for workers (with a floor equal to the minimum wage) and full exemption of social security contributions for firms, with a maximum duration of 600 hours. The allocation was partially financed by a subsidy from the state in the form of a lump sum, with the remainder paid by firms. Collective agreements were used to negotiate top-ups to standard STW benefits.
Despite the long-standing existence of STW and the adjustments made to incentivise its use, take‑up during the global financial crisis remained considerably lower than in countries with similar STW provisions. In response to the crisis, benefits for workers were temporarily increased to 60% of previous gross wages, while the subsidy to firms increased from 2.13 EUR to 3.33 EUR per hour not worked for firms with more than 250 employees and from 2.44 EUR to 3.84 EUR for smaller firms. The maximum duration was increased to 800 hours. The implementation of training was promoted. Moreover, a “long-duration” scheme (Activité Partielle de Longue Durée – APLD) was created to provide more generous and long-lasting support to firms experiencing structural difficulties. Despite these measures, take‑up levels in France peaked at only 1.2% in June 2009 in comparison to 4.3% in Germany and 7.4% in Italy. This moderate use can partly be attributed to low subsidies for firms and the burdensome application procedure, which often entailed a long delay before subsidies were received.
In the aftermath of the global financial crisis, STW was redesigned and its use promoted under pressure of the social partners, despite the risk of layoffs having largely returned to pre‑crisis levels. The “regular” and “long-duration” provisions were merged into a unique “regular” scheme. It provided support for a maximum duration of 1 000 hours, with a benefit for workers equal to 70% of normal earnings (100% in case of training) and a subsidy for firms equal to 7.23 EUR (for firms with more than 250 employees; 7.74 EUR for firms with less than 250 employees). The application procedure was simplified. Although the economy was already recovering from the temporary downturn, the social partners pushed for the widespread adoption of STW, which resulted in a higher use compared with the period prior to the global financial crisis, often related to structural difficulties in firms, somewhat similar to the situation observed in Italy until 2015 (although to a significantly lower degree).
It was not until the COVID‑19 crisis that France observed a massive expansion of its STW scheme, as further adjustments were made to promote its use. The “regular” STW scheme was replaced by three STW measures in order to differentiate generosity (regular, crisis and long-duration). Under the crisis scheme (accessible via the force majeure modality), the maximum duration was increased to 12 months, the benefit remained initially at 70% of previous wages, whereas the cost for hours worked to firms was set to zero. Moreover, firms willing to implement training programmes over any STW period could request a subsidy for their educational costs from the public authorities. Its increased generosity and the simplified procedure made possible under the force‑majeure modality prompted an unprecedented use of STW in France, culminating in April 2020 at 33% of private employment, one of the highest levels observed across OECD countries, and 14 times higher than at its peak level during the global financial crisis.
The use of STW as a policy measure to promote labour market resilience is relatively recent in Spain. While a STW mechanism has existed since 1980, it was originally designed as a measure to limit the social impact of collective dismissals with an emphasis on work-sharing.3 Historically, its implementation required firms to experience a reduction in working time of at least one‑third. All workers on standard contracts entitled to unemployment benefits were eligible. The procedure for application was similar to that for collective dismissals, requiring an initial petition, a consultation period with worker representatives (minimum 15 days) and the approval of the labour authority. This lengthy process meant that the scheme was not well suited for addressing emergency situations in the context of a sharp economic downturn, as illustrated by its limited use during the global financial crisis.
Since its inception to the present day, STW in Spain has been strongly embedded within the broader system of unemployment insurance. The scheme was financed through unemployment insurance funds like in Germany and Italy, but unlike the other countries, compensation was paid out directly to workers. STW workers had to register as job-seekers with the public employment service (Servicio Público de Empleo Estatal – SEPE) and were formally required to engage in active job search. STW benefits are identical to those for standard unemployment (typically 70% of gross earnings during the first 180 days and 50% thereafter until the maximum duration of 24 months) and eligibility requires meeting the minimum contribution requirements for unemployment benefits. Firms usually had to pay employer social security contributions for hours not worked.
To promote labour market resilience in response to the COVID‑19 crisis, Spain reinforced its STW scheme ERTE (Expedientes de Regulación Temporal de Empleo). This fulfilled the ambition of Spain since the global financial crisis to establish a STW scheme which can be scaled up quickly during an economic downturn, similar to the German Kurzarbeit. To be eligible, firms must face a minimum reduction of working time of 10% and all workers are eligible (without having to meet minimum contribution requirements for unemployment benefits). Like in France, a separate “crisis” scheme was introduced on top of the “regular” scheme that could be accessed in the case of force majeure and provides more generous conditions. It provided larger exemptions from social security contributions (which also varied depending on firm size), the stepdown in the replacement rate after 180 days was removed and promoted the use of training while on STW through the provision of additional subsidies. Under the force majeure modality, the approval procedure was shortened to a maximum of five days and the requirement of a consultation period with employees’ representatives was removed in favour of a simple notification. The scheme restricts dismissals for six months after the end of the programme.
The introduction of ERTE in response to the COVID‑19 crisis is widely considered a success. While take‑up was minimal during the global financial crisis, it peaked at 23% in April 2020, a level comparable to that seen in Germany. Importantly, this is likely to have prevented a surge in unemployment. While the unemployment rate increased from 7.9% to 26.3% during and after the global financial crisis, it increased only modestly during the COVID‑19 crisis from 13.7% to 16.6% in August 2020 (OECD, 2022[4]). The evaluation in Chapter 6 suggests that the benefits of the scheme were felt mostly for workers on standard contracts. Even though eligibility was expanded to cover non-standards workers, employers often let temporary contracts expire, resulting in significant job losses in March 2020 (Eurofound, 2021[5]).
The Spanish Government has transformed the temporary ERTE provisions into permanent regulations through a labour reform passed in December 2021 (Box 2.1). It established the parameters of the “regular” scheme and introduced two new schemes to address either “sectoral” or “cyclical” shocks (RED Mechanism), which can be used by firms for a maximum duration of one year. They depend on a government decision to activate these provisions, following a national agreement between the social partners. In the case of the sector-specific scheme, firms are required to present a training and requalification programme for workers, and they receive a 40% exemption from social contributions conditional on training being successfully carried out. In the cyclical scheme, exonerations have a declining schedule of 60%, 40% and 20% during the three four‑month periods encompassing the duration of the scheme.
In late 2021, a comprehensive labour reform market reform was adopted that also affected the regulation of ERTE updated ERTE regulations (Real Decreto-ley 32/2021). It made many of the temporary ERTE provisions used during the pandemic permanent and in addition created two new types of “extraordinary” ERTEs that could be used in times of macroeconomic downturns or to support sectoral transformation. Most of the new ERTE provisions entered into force in April 2022.
Changes to regular ERTE
As before the pandemic, regular ERTEs could be declared on the basis of either 1) economic, technical, organisational or productive reasons (ETOP), or 2) force majeure reasons. Governmental actions that limit or prevent normal economic activities (such as the stay-at-home orders used in the pandemic) were added as legitimate reasons for the use of the force majeure modality of ERTE.
In the new regulations, firms can reduce hours worked by employees between 10% and 70% of their normal hours or fully suspend workers. Firms can benefit from social security exonerations conditional on preserving workers for at least six months after ending their use of ERTE. In the case of ETOP, an interesting innovation is that social security exonerations are only applied if firms undertake training activities for their workers.
Replacement rates were kept at 70% for workers on ERTE irrespective of the modality used. Additionally, the maximum period of consultation with worker representatives was reduced for small and medium-sized firms from two weeks to one.
The RED Mechanism
The reform also created two new types of ERTEs that can be “activated” by the government in case of either 1) macroeconomic cyclical downturns, or 2) sectoral transformations that require substantial labour reallocation. These schemes are activated by a national agreement between the social partners that is validated by the government. This possibility is referred to as the “RED Mechanism”.
Once this mechanism is activated, firms can apply for the use of ERTEs under a simplified procedure while benefiting from favourable exoneration rates from social security. A one‑year cap on the use of ERTE was set for both types of ERTEs, but sectoral ones can be extended for two additional semesters upon approval. In the case of sectoral justifications, firms are required to submit a requalification plan for their workers and must provide training in order to obtain exonerations.
Travel agencies were the first sector to use the sectoral ERTE following continued difficulties in the sector after the pandemic.
A new best practice?
Spain is now one of the few OECD countries with an explicit framework for scaling up support in times of exceptional need (RED Mechanism). It does so by striking a subtle compromise between allowing for discretion in the modulation of support and the use of automatic rules. The risk of not having an explicit framework for scaling up support is that too much time is needed to reach a political consensus at a time when expediency is of the essence. Automatic rules can in principle address this issue by scaling up support once a given economic threshold is reached (e.g. unemployment rate reaching some given level). Such rules are effectively being used in several OECD countries to extend the maximum duration of unemployment benefits in the context of a deep recession. However, this approach does not work for STW. Since the threshold that is used to trigger additional support is necessarily backward looking, there is a risk that additional support is only made available after the first wave of job losses has taken place. Instead of using automatic rules the RED therefore relies on a national agreement by the social partners validated by the government to trigger additional support.
Source: Real Decreto-ley 32/2021
Across OECD countries, STW schemes have existed for decades with varying usage and institutional characteristics. While in Germany STW provisions historically constituted an important part of labour market policy to mitigate temporary changes in labour demand, in France and Spain, they were originally designed with a more limited objective in mind. In Italy, STW evolved into a measure that was often used to also support jobs in firms with structural difficulties in the absence of a broad-based safety net for the unemployed.
Amongst these different traditions, the German scheme stands out for its comprehensive scope and adjustable design which made it an effective tool for coping with economic crises and labour market shocks throughout the years by providing more flexibility on the intensive margin. This long history partly explains its success. The development of a well-calibrated scheme that covered a comprehensive range of conditionality rules made its use customary amongst firms, resulting in strong adoption levels in times of crisis. In fact, the high take‑up rates of STW during the global financial crisis partly contributed to the resilience of German labour market over this period. By comparison, STW schemes in Italy, France and Spain were less well developed, with complicated eligibility criteria, burdensome application procedures and, in some cases, fewer incentives for firms, which limited their adoption and effectiveness during the global financial crisis of 2008‑09.
As the COVID‑19 crisis threatened to cause a surge in unemployment across the OECD, most countries took active measures to scale up and expand existing STW schemes to preserve jobs and support incomes. Germany, Italy, France and Spain all took steps to relax eligibility criteria, for instance, extending coverage to workers on non-standard contracts, to increase generosity for firms and to simplify application procedures and requirements. For Italy, France and Spain, the COVID‑19 crisis presented an opportunity to refine and redesign their STW schemes into a coherent set of provisions that can be easily scaled up and phased out in the face exogenous shocks, ultimately converging towards the German Kurzarbeit model.
References
[5] Eurofound (2021), COVID-19: Implications for employment and working life, Publications Office of the European Union, Luxembourg, https://doi.org/10.2806/024770.
[6] Herzog-Stein, A., G. Horn and U. Stein (2013), “Macroeconomic Implications of the German Short-time Work Policy during the Great Recession”, Global Policy, Vol. 4, pp. 30-40, https://doi.org/10.1111/1758-5899.12054.
[3] Hijzen, A. and S. Martin (2013), “The role of short-time work schemes during the global financial crisis and early recovery: a cross-country analysis”, IZA Journal of Labor Policy, Vol. 2/1, https://doi.org/10.1186/2193-9004-2-5.
[1] Hijzen, A., A. Salvatori and A. Puymoyen (2021), “Job retention schemes during the COVID-19 crisis: Promoting job retention while supporting job creation”, Employment Outlook.
[2] Hijzen, A. and D. Venn (2011), “The Role of Short-Time Work Schemes during the 2008-09 Recession”, OECD Social, Employment and Migration Working Papers, No. 115, OECD Publishing, Paris, https://doi.org/10.1787/5kgkd0bbwvxp-en.
[4] OECD (2022), Unemployment rate (indicator), https://doi.org/10.1787/52570002-en (accessed on 1 February 2022).
← 1. This is intended for firms that seek to dismiss workers permanently, for example in the case of a company restructuring, and covers the costs of providing support to workers for finding a job in another firm, mainly in the form of hours not worked. The arrangement is either preceded by a meeting with counsellor of the PES or embedded in a social plan. Workers receiving a transfer benefit are not working and at risk of becoming unemployed, meet the requirements for receiving unemployment benefits and are registered with the PES as looking for a job.
← 2. Other estimates suggest that cyclical job losses would have been about 40% higher in the absence of the scheme (Herzog-Stein, Horn and Stein, 2013[6]).
← 3. Like in France, Germany and Italy, the scheme is available to enterprises experiencing severe economic difficulties of an exceptional nature either as a result of economic, technological, organisational or production-related circumstances, or due to a temporary “force majeure”.