This chapter provides an overview of the report “Preparing ERTE for the future” and puts forward a number of policy recommendations for future reflection. It discusses the design and implementation of the Spanish job retention scheme, Expedientes de Regulación Temporal de Empleo (ERTE), during the COVID‑19 crisis, its use and its main effects. The main message is that ERTE has been a highly successful instrument to support employment during the COVID‑19 crisis.
Preparing ERTE for the Future
An Evaluation of Job Retention Support in Spain During the COVID-19 Pandemic
Abstract
Job retention support has been a major success during the COVID‑19 crisis in Spain. To put things in perspective, it is instructive to compare Spain’s experience during the COVID‑19 with that during the global financial crisis. At its peak during the COVID‑19 crisis in April 2020, 23% of workers were on job retention support. By contrast, during the global financial crisis, job retention support played no meaningful role, covering never more than 0.8% of the workforce. At the same time, the unemployment response to the decline in aggregate activity was several times smaller and much less persistent during the COVID‑19 crisis than during the global financial crisis. The modest increase in unemployment during the COVID‑19 crisis is likely to reflect in part the widespread deployment of job retention support. While several other factors may account for the relatively small unemployment impact of the COVID‑19 crisis, including the specific nature of the crisis, this report provides cutting-edge evidence on the role of job retention support in limiting the rise in unemployment. It suggests that in the absence of job retention support, the unemployment rate would have been at least 4 percentage points higher than its actual rate on average during the 18 months since March 2020.
The success of job retention support during the COVID‑19 crisis was the result of measures taken in the aftermath of the global financial crisis to expand its applicability and accessibility. Given the devastating impact of the global financial crisis on the labour market in Spain, there was a strong policy interest in measures to promote labour market resilience and notably the role of job retention support. However, it was not until the COVID‑19 crisis struck that the Spanish job retention scheme, Expedientes de Regulación Temporal de Empleo (ERTE), became an effective tool to promote labour market resilience. This fulfilled Spain’s ambition since the global financial crisis to establish a job retention scheme, which can be scaled up quickly during an economic downturn and be phased out as the economy recovers. During the COVID‑19 crisis, ERTE maintained some of its historical features – notably its close link to the unemployment benefit system – but its use was simplified and its generosity increased. ERTE was adjusted multiple times during the COVID‑19 crisis, resulting in amongst others a gradual increase in the cost of support to firms. In December 2021, Spain passed a major labour reform, which established the key parameters of its regular job retention scheme and introduced a unique mechanism based on a national agreement between the social partners to scale up support in times of crisis or to accompany company restructuring in the context of rapid structural change.
The objective of this report is to contribute to our understanding of the role of job retention support in Spain in promoting labour market resilience and enhancing labour market performance in normal times. To this end, Chapter 2 provides an introduction to the origins and evolution of the Spanish job retention scheme as well as that in three major European countries (e.g. France, Germany, and Italy). Chapter 3 provides a detailed description of the design and implementation of job retention support during the COVID‑19 crisis in Spain as well as France, Germany and Italy. Chapter 4 provides a statistical portrait of the use and determinants of job retention support during the COVID‑19 crisis based on administrative data for Spain. Chapter 5 provides a first indication of the possible effects of job retention support in Spain by reviewing the existing empirical evidence and presenting some key stylised facts. Chapter 6 provides a cutting-edge evaluation of the causal effects of job retention support during the COVID‑19 crisis in Spain.
The present chapter provides a selective summary of the report by characterising the institutional design of ERTE, documenting its use during the COVID‑19 crisis and evaluating its effectiveness in saving jobs and improving labour market performance. It concludes with recommendations and best-practice examples for enhancing the future design of ERTE.
1.2.1. The degree of co-financing by firms played a key role for the modulation of support over the course of the COVID‑19 crisis
The cost of job retention support for firms was significantly reduced at the start of the crisis in most OECD countries, including Spain. The cost of hours not worked for firms with less than 50 employees was set to zero, while that for larger firms was set to 6% of normal labour costs. This reflected the view that firms and workers needed to be insulated from the effects of lockdown measures. As economic activity resumed, co-financing requirements were strengthened to reduce concerns that ERTE would end up supporting permanently unviable jobs. However, by making the use of job retention support more costly for firms, it also risked increasing the financial difficulties of liquidity-constrained firms with temporary difficulties and weakening the incentives of firms for relying on job retention support to protect the jobs of vulnerable workers (low skilled, temporary contracts, youth).1 An alternative to direct co-financing is experience‑rating whereby firms contribute to the cost of job retention schemes in the future through higher social security contributions, depending on how much they have used it in the past. Unlike direct co-financing, this does not compound the liquidity-constraints of firms with temporary difficulties, but still ensures that job retention support is not an attractive option for firms with structural difficulties.
1.2.2. Subsidies for hours not worked are made directly to workers rather their firms and are more generous for low-wage workers
Job retention support is historically closely linked with the unemployment insurance system in Spain. One visible consequence of this is that payments are made to workers rather than their firms, in contrast to most other countries with job retention schemes. The practical implications of this are modest, however. While this shifts the burden of delays in the payment process from firms to workers, significant payment delays have become rare in most countries, including Spain. Making payments directly to workers in principle also could make it easier for the public employment services to provide support to workers on reduced working time who are at risk of permanently losing their jobs (e.g. job-search assistance, career guidance), although this is rarely done in practice. Perhaps a more important consequence of the strong link between job retention support and unemployment benefits is that worker eligibility, benefit generosity and benefit duration are traditionally governed by the same rules. Just as in the case of regular unemployment benefits, job retention benefits provide stronger income protection to low-wage workers. While the policy rate is 70% of previous earnings, the effective replacement rate is lower for high-wage workers due to the presence of benefit caps (e.g. 50% for workers at the average wage and 25% for workers earning twice the average wage).
1.2.3. The social partners were actively involved in the implementation of job retention support
The social partners were actively involved in the implementation of job retention support in Spain during the COVID‑19 crisis. At the national level, the social partners have been instrumental in the simplification of job retention support at the start of the COVID‑19 crisis (e.g. procedures, eligibility) and the elaboration of the labour law of December 2021 that instituted a long-term framework for job retention support. This also includes the “RED mechanism” for scaling up support in times of crisis or sectoral restructuring that is activated through a national agreement between the social partners validated by the government (see Box 1.1 for more details). The implementation of job retention support at the firm level also involved the social partners. For the regular use of ERTE, there is a 15‑day mandatory consultation period with worker representatives or, if absent in the firm, a dispute and mediation procedure. In the event of force majeure or, since the 2021 labour reform, when the RED mechanism is activated, this is replaced by a 5‑day notification period. The involvement of the social partners in the implementation of ERTE at the firm-level helps to ensure that its use is limited to firms in which there is a genuine risk of job losses. Since job retention support involves a significant cost for workers compared with working normally, worker representatives will only agree to this if this helps to prevent layoffs.
1.2.4. Participation in training while on short-time work was high
Most countries including Spain have put in place financial incentives to promote participation in training while on job retention support. Since November 2021, Spain reimburses part of training expenses through a lump-sum subsidy that varies by firm size and grants larger social security contribution exemptions to employers combining job retention support with training. Participation in training while on reduced working hours can help improve the viability of one’s current job or the prospect of finding a new one. In Spain, training should normally be work-related (including when the RED mechanism is activated for cyclical reasons), and hence should seek to enhance the viability of one’s current job. This is consistent with the objective of job retention to support jobs that are temporarily at risk but remain viable in the longer term. However, when the RED mechanism is activated to support company restructuring, training should be designed to promote job mobility and employability in general. The use of training while on job retention support appears to have been particularly high since the introduction of training subsidies in Spain (see Chapter 3). This suggests that it was relatively easy to combine training with job retention support. However, little is known about the effectiveness of training while on job retention support. To ensure that work-related training is meaningful, training should be provided externally by certified providers as, for example, in France.
1.2.5. Layoff bans were relatively strict by international standards
Several countries operating job retention schemes, including Spain, imposed restrictions on layoffs in firms receiving job retention support. However, these restrictions were considerably stronger in Spain than elsewhere. In Spain, layoff restrictions applied for six months after the support period (usually three or four months) and, in the event of layoffs, firms had to reimburse the government the full costs of support received. Bans on layoffs can be viewed as a conditionality imposed on firms in return for public support. However, whether they are socially desirable is unclear a priori, as they can have potentially contrasting effects on job retention and job reallocation. By increasing de facto firing costs, layoff bans may improve the targeting of support to jobs that are more likely to remain viable, with a potential positive effect on job reallocation, although at the cost of a lower use of job retention in the short run. However, it is also possible that layoff bans increase job retention by making it more difficult to lay off workers when business conditions deteriorate unexpectedly at the cost of slowing job reallocation. Since the labour market reform of December 2021, restrictions on layoffs in firms using ERTE have been relaxed. They now apply until six months after the start of the programme and it has been clarified that, in the event of layoff, only subsidies received for the worker concerned need to be paid back.
1.2.6. Work resumption bonuses were used to promote the return to normal working hours
Spain is the only OECD country with a job retention scheme that provides financial incentives to firms for resuming normal working-time schedules as soon as possible. This system was set up after the first wave of the pandemic in sectors where many workers remained on job retention support despite the gradual reopening of the economy. The hope was that this would reduce concerns that firms continued to rely on support despite no longer needing it. While the use of job retention support declined relatively quickly in Spain compared with other countries, there is no direct evidence on the effectiveness of these bonuses to speed up the resumption of regular working-time schedules.
In late 2021, a comprehensive labour reform market reform was adopted that also affected the regulation of ERTE (Real Decreto-ley 32/2021). Most of the new provisions related to ERTE entered into force in April 2022.
Establishing the parameters of the permanent scheme
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. As established during the pandemic, 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.
An explicit framework for scaling up support in times of exceptional need: The RED Mechanism
The reform also created two new types of ERTE 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 ERTE 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 ERTE, firms are required to submit a requalification plan for their workers and must provide training in order to obtain exonerations.
Striking a balance between rules versus discretion to ensure support is provided in a timely manner
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 bypass this issue by scaling up support once a given threshold is reached (e.g. unemployment rate). Such rules are currently used in several OECD countries to extend the maximum duration of unemployment benefits during economic downturns. However, this approach does not work for job retention support. Since the threshold for triggering 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. The RED mechanism therefore instead relies on a national agreement by the social partners validated by the government to trigger additional support.
Source: See more details in Chapter 2 of this report.
1.3.1. The use of job retention support as a policy measure to promote resilience is relatively new
Support for employment maintenance mechanisms as a policy measure to promote resilience has recently been reinforced in Spain. While a job retention scheme 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. The procedure for applications was similar to that for collective dismissals, requiring an initial petition, a consultation period with worker representatives and the approval of the labour authority. This lengthy process meant that the scheme was not well suited for addressing emergencies in the context of a sharp economic downturn. This was illustrated by its limited use during the global financial crisis when take‑up peaked at less than 1% of the workforce, much less than in countries such as Germany and Italy and below the average of OECD countries with a job retention scheme. By contrast, during the COVID‑19 crisis, take‑up peaked at 23% of employment in April 2020.
1.3.2. In response to the COVID‑19 crisis, support was rolled out quickly and phased out gradually as economic activity resumed
In response to the COVID‑19 crisis, job retention support was provided in a timely manner, reaching 23% of the workforce, or almost one in four workers, by April 2020, only one month after the outbreak of the pandemic (Figure 1.1). The timeliness of support is likely to have played a crucial role in preventing a surge in unemployment due to the lockdown measures that were put in place to contain the spread the of the virus. As economic restrictions were gradually withdrawn, and economic activity resumed, the demand for job retention support declined. This was reinforced by adjustments to ERTE that gradually increased the costs of using it for firms. As a result of these factors, the use of ERTE had declined to negligible levels by early 2022. The fact that take‑up did not persist long into the recovery is reassuring and suggests that ERTE is unlikely to have had a major impact on slowing job reallocation from low-productivity firms with structural difficulties to high-productivity ones with healthy growth prospects. Again, this stands in sharp contrast to the experience during the global financial crisis when the use of job retention support tended to be more persistent in some countries (e.g. Italy).
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: See Chapter 2 of this report for more details.
1.3.3. The use of ERTE was strongly driven by health and economic conditions
The use of ERTE was stronger in regions, industries, and occupations most affected by the COVID‑19 crisis. In provinces with high rates of COVID‑19‑related hospitalisations and deaths or with larger declines in workplace mobility, the use of ERTE was stronger. By allowing workers to stay at home, ERTE helped to contain the spread of the virus, while preserving their jobs and supporting their incomes. Similarly, the larger the reduction in gross value added in an industry the larger the use of ERTE. Take‑up was particularly important among small services firms, notably in the hotels-and-restaurant and culture sectors. This stands in sharp contrast to the experience during the global financial crisis during which take‑up was concentrated among large manufacturing firms. This reflects the very different impact of the COVID‑19 crisis on the ability of different groups of firms to continue their economic activity in a context where face‑to-face contact and workplace mobility were severely restricted. Indeed, occupations that involve face‑to-face contact or where the scope for teleworking was limited, tended to exhibit a more intensive use of ERTE. On the contrary, workers in “essential” jobs, i.e. those (partially) exempt from mobility restrictions, saw a lower use of ERTE despite being strongly exposed to the pandemic.
1.3.4. The use of ERTE tended to be stronger among small and medium-sized firms
The use of ERTE was considerably higher in small and medium-sized firms, particularly those with less than 100 employees. This is again very different from the experience during the global financial crisis when the use of job retention support was concentrated among larger firms. Smaller firms may be more likely to use support in general because they are more likely to be liquidity constrained as access to credit tends to be more limited. However, this does not explain why the use of job retention support was more concentrated in small and medium-sized firms during the COVID‑19 crisis and not during the global financial crisis. One factor that plays an important role in explaining why its use was concentrated among small and medium-sized firms during the COVD‑19 crisis was its different sectoral impact. Another explanation could be that smaller firms make less intensive use of digital technologies, were less well equipped for teleworking and hence may have been hit harder by COVID‑19 restrictions. An additional factor for Spain was that at the start of the COVID‑19 crisis, the cost of using job retention support for small firms with less than 50 employees was zero whereas larger firms were required to cover some of the cost of hours not worked.
1.3.5. The distributional implications of ERTE across different groups of workers are likely to have been modest
The use of ERTE across different groups of workers in terms of age and gender reflects to an important extent the impact of the COVID‑19 crisis across industries, occupations and regions and the composition of employment across demographic groups along these dimensions. As a result, women and initially also young workers were more likely to be placed on ERTE. While its use tended to be concentrated among workers with permanent contracts, take‑up was initially also high among workers with temporary contracts. This is likely to reflect the fact that such workers could not be dismissed easily before the end of their contract. Relative take‑up among temporary workers declined as the crisis evolved as the incentives of firms to keep temporary workers on ERTE beyond the foreseen end date of their contract are likely to be weak. Incentives for hoarding temporary workers may have weakened further as a result of the gradual increase in the costs of hours not worked for firms. When the use of job retention support is costly to firms, they are likely to be more selective in the jobs that they choose to preserve. All in all, it seems that the distributional impact of ERTE, at least as far as its use is concerned, is likely to have been modest.
1.3.6. The use of ERTE was also affected by its specific design
The specific design of ERTE, including co-financing and layoff restrictions, also affected its use. During the first period of the COVID‑19 crisis, small firms with less than 50 employees were fully exempted from paying social security contributions over hours not worked, whereas larger firms were only partially exempted, and had to pay 25% of normal social security contributions over hours not worked, which amounts to 6% of hourly labour costs. The larger costs of using ERTE for firms with 50 or more employees reduced take‑up by 4.5 percentage points on average during the period March 2020 – August 2021 (Figure 1.2, Panel A). This is a large effect since it represents a 38% increase with respect to the average of firms just above the threshold. Moreover, this effect is largely concentrated on workers with open-ended contracts. This suggests that JR support was used by firms to preserve firm-specific capital among workers with longer tenure and stronger incentives to invest in skills, but also that it tended to reinforce labour market duality by limiting its use to workers with open-ended contracts.
1.4.1. The increase in unemployment in response to the decline in economic activity was muted
The muted increase in unemployment during the COVID‑19 crisis provides a first indication of the possible effectiveness of ERTE in saving jobs. The unemployment response to the decline in aggregate activity during the COVID‑19 crisis in Spain was several times smaller than that during the global financial crisis. This was not just because the COVID‑19 crisis was different. If that were to be the only reason, we should see a similar difference in other OECD countries. While there are important differences in some countries, the case of Spain stands out. During the global financial crisis, the Spanish labour market adjusted to the economic downturn by shedding more jobs than any other OECD country. This reflected, in part, the excessive reliance on temporary contracts which made it easier for firms to shed workers, but also the underdeveloped nature its job retention scheme to support broad-based reductions in working time. By the time the COVID‑19 crisis struck, there was still a strong reliance on temporary workers, but job retention support had become more readily available. This suggests that job retention support has played a key role in limiting the rise in unemployment following the COVID‑19 crisis. While this seems plausible in principle, it is important to establish whether and, particularly, to what extent, this was the case using careful evaluation techniques.
1.4.2. ERTE was a highly efficient policy to promote job retention at the firm-level
In order to evaluate the effectiveness of ERTE in saving jobs, this report provides quasi‑experimental evidence based on the difference in co-financing rules for hours not worked for firms with slightly less than 50 employees and those with 50 or slightly more based on their level of employment before the start of the pandemic on 29 February 2020. To ensure that firms only differ in the generosity of job retention support to which they have access and not in the way they are treated by any other rules and regulations that make use of the threshold, the analysis focuses on firms that cross the threshold just before and after 29 February 2020 but have otherwise identical employment trajectories. The results indicate that at the micro-level, ERTE was highly effective in preserving jobs. Lower co-financing requirements for firms with slightly less than 50 employees increased the take‑up rate of ERTE by 4.5 percentage points on average during the period from March 2020 to August 2021, while it increased the job retention rate by 3.3 percentage points over the same period (Figure 1.2, Panel B). Taken together, these estimates imply that deadweight effects – support for jobs that would have been retained anyway or could not have been saved even with support – were modest at around 25%. This is consistent with the observation above that the use of ERTE was largely related to the presence of economic restrictions and hence temporary difficulties.
Take‑up and job retention on average during the period March 2020‑ August 2021 as a share of workers employed
Notes:
**, *** statistically significant at the 5 and 1% level respectively.
The figure displays the mean in take‑up and employment of ERTE during the first 18 months of the pandemic from March 2020 to August 2021 in firms with 50 or more employees (large firms) and those with less than 50 employees (small firms) on 29 February 2020. During this period the use of ERTE was less costly for small firms as they benefited from larger exemptions from social security contributions over hours not worked. Take‑up in Panel A refers to the share of workers employed in February 2020 that spent at least one day on ERTE during the period from March 2020 to August 2021. Job retention in Panel B refers to the share of workers employed in small (large) firms in February 2020 that were still employed in the same firm on average in each month during the period from March 2020 to August 2021.
Source: See Chapter 6 of this report for more details.
1.4.3. The effects on aggregate employment are likely to have been even larger
Given the unprecedented use of job retention support, the evaluation gives special emphasis to its potential macroeconomic effects. It does so by explicitly taking account of the effects of job retention support on the job-finding prospects of those who are already unemployed by limiting so-called “congestion effects” in the labour market. Such congestion effects arise when an increased number of unemployed jobseekers compete for a limited number of job vacancies during an economic downturn, resulting in an increase in the expected duration of unemployment. The results suggest that, at the macro-level, ERTE was even more effective in supporting employment than at the firm-level. By reducing job losses, it prevented the labour market from becoming congested and depressing the job-finding prospects of those already unemployed. It is shown using a difference‑in-difference design that the effective generosity of ERTE, as measured by the share of employment in small firms in a province, prevented a sharp decline in the job-finding probability of the unemployed during the COVID‑19 crisis. Using a simple accounting framework, it is then shown that congestion effects increase the effect of ERTE on employment by 50% or more. As a result, the effect of ERTE on aggregate employment exceeds that of the level of take‑up. This implies in turn that the fiscal balance of job retention support was positive, i.e. the cost of supporting jobs was more than offset by lower expenditures on unemployment benefits and higher tax receipts.
1.4.4. ERTE is unlikely to have had a major effect on job reallocation and labour shortages
By preserving employment in a large fraction of firms, ERTE may have reduced the number of job seekers and made it more difficult to recruit workers for firms that wished to expand. In principle, this could have reinforced labour shortages, slowed the efficiency-enhancing reallocation of jobs towards more productive firms and weakened aggregate productivity growth. To examine this issue, the report analyses to what extent ERTE affected the probability of moving to a better firm. The results indicate that in later periods ERTE may have slowed the transition probability of workers to better firms, but also that this effect is rather small. Indeed, it mainly slowed involuntary transitions to worse firms (downgrading), as intended by the programme. As a result, conditional on moving, workers were more likely to move to better firms. All in all, these findings are consistent with the notion that use of ERTE was largely temporary and its use to support firms with structural difficulties was rather limited.
While ERTE has been a major success and the 2021 labour market reform already introduced important changes to further enhance the effectiveness of ERTE in supporting labour market resilience, the report provides several insights that can help to further fine‑tune its design in the future.
1.5.1. Recommendation 1 – Keep the system simple and predictable
While applying for job retention has been relatively straightforward since at least the start of the COVID‑19 crisis, the design of the scheme remains relatively complex and has changed numerous times. This reduces the readability of the scheme by firms and workers and the effectiveness of having a well-designed scheme. For example, before the labour market reform of December 2021, there was considerable uncertainty about the operation of the layoff ban and it is unclear how the rules have been interpreted by firms. Similarly, the empirical analysis shows that the role of differences in co-financing rules by firm size for take‑up became more important over time, possibly reflecting learning effects. The labour market reform of December 2021 provides an important step in the right direction by clarifying and simplifying the rules. Looking ahead, there are several ways in which the system could be simplified further. For example, one could remove restrictions on the permissible reduction in working time or replace it by a minimum level (e.g. 10%). Currently, the system allows for reductions in working time between 10‑70% as well as complete suspensions (100%). Similarly, degressive benefit schedules – which still exist in some parts of the system – could be removed provided that the maximum duration of support remains relatively short.
1.5.2. Recommendation 2 – Promote the effectiveness of training while on job retention support
Training while on job retention support is actively promoted through the use of financial incentives in the form of additional exemptions from social security contributions. The purpose of training should generally be work-related (in the regular ERTE scheme as well as under the RED mechanism for cyclical reasons). The idea of work-related training is to enhance the viability of the job of the worker and, in doing so, support job retention. While the use of training while on short-time work appears to have been relatively high, it is not always clear whether training is meaningful and effective. In particular, there is a concern that training is done to extract the additional exemption from social security contributions rather to address a specific skills gap. This risk is more pronounced when training is provided informally within the firm. One way to allay such concerns would be to require training to be provided externally by certified suppliers of education services, as in the case of France, and to conduct regular evaluations of training courses provided in the context of short-time work (Box 1.2).
France was particularly successful in combining job retention support with training. This reflects a well-established infrastructure for adult learning, coupled with generous financial incentives for the use of training while on job retention support. The system for adult training among the unemployed was swiftly redeployed to support workers on job retention support (FNE Formation). The programme fully reimburses the pedagogical expenses of training for employers, with limited conditions on the type of training pursued, and workers receive 100% of the usual wage when participating in training. About half of workers participating in training while on job retention support were supported by FNE Formation. Since these subsidies are directed at employers, they are likely to be used mainly for training courses that enhance the performance of workers in their current firm. France’s system of individual training accounts (Compte Personnel de Formation, CPF) can also be used for training whilst on job retention support. This is explicitly directed at the workers themselves and is more likely to be used for training courses that enhance opportunities for career advancement more generally, including through job mobility between firms.
1.5.3. Recommendation 3 – Replace co-financing with experience‑rated employer contributions
One potential concern with job retention support is that it is used to support jobs that have no future beyond the duration of programme, and in doing so, slows the reallocation of jobs from less to more productive firms, undermining aggregate productivity growth. The idea of requiring employers to co-finance part of the cost of hours not worked is that it provides incentives for firms to only use job retention subsidies to support jobs that are temporarily at risk. A potential problem with co-financing however is that it also makes job retention subsidies less effective as a tool to support firms with liquidity constraints, that is, the very firms it is supposed to help. This may be a consequence of the way in which co-financing is implemented in Spain and most other OECD countries as a direct and contemporary contribution to the cost of hours not worked. Instead of direct co-financing, Spain could consider a shift towards experience‑rating, where the current use of ERTE determines social security contributions in the future. This could be part of a broader reform that introduces a bonus-malus system for the financing of unemployment insurance, following the examples of France and the United States. See Box 1.3 for a description of experience‑rated unemployment benefits in those countries.
Only few countries operate experience‑rated employer contributions for unemployment insurance. The United States had such as a system for a long time, while it was introduced in 2022 in France. One reason why few countries operate such systems may be that they tend to be difficult to implement. With the advancement of digital technologies, this argument has become less important. Experience‑rating mainly serves to reduce the termination of jobs that are temporarily under pressure as in the case of temporary layoffs, intermittent contracts and short-time work.
United States
Unemployment insurance benefits in the United States are primarily financed through experience‑rated employer contributions for unemployment insurance. Each employer has a fictional account that is credited with their contributions and debited with claims from its ex-employees. The balance relative to the wage bill of the employer (highest over the past three to five years) determines the level of contributions subject to a floor and a ceiling. The actual rates vary across states and time. According to the Department of Labor, about 60% of unemployment claims is individualised such that the employer pays for the fiscal cost of layoffs of its own workers, while the other 40% is shared evenly across firms due to the role of floors and ceilings.
France
France introduced a “bonus-malus” system for unemployment insurance in selected sectors in September 2022. The main rationale of the reform was to limit the excessive use of short-term contracts. This bonus-malus modulates the rate of the employer’s unemployment insurance contributions, depending on the number of workers in a firm whose contract is terminated and subsequently registered with the public employment services as a share of its workforce. Firms with a separation rate above the median will see an increase in their contributions up to a ceiling of 5.05% of the wage bill, while firms with a lower rate will experience a reduction down to a floor of 3%. The bonus-malus system applies to firms with more than ten employees in sectors with an average separation rate of more than 150% of the national rate and is calculated based on the separation rate during the previous year.
Source: OECD (2024[1]), Reviving Broadly Shared Productivity Growth in Spain, https://doi.org/10.1787/34061b21-en.
1.5.4. Recommendation 4 – Ensure effective out-of-work income support is available for workers for whom job retention support is either not available or not effective
While the use of ERTE during the COVID‑19 crisis appears to have been a major success, it cannot be a solution to all problems. It cannot address the structural problems of firms, and it is unlikely to be effective in preserving jobs of workers with limited firm-specific skills such as temporary workers and apprentices and it is generally not available to self-employed workers who suffer a reduction in their income due to a generalised slowdown in economic activity. Consequently, it will be important to ensure that workers, for whom job retention support is either not available or not fully effective, have access to effective out-of-work income‑support systems.
References
[1] OECD (2024), Reviving Broadly Shared Productivity Growth in Spain, OECD Publishing, Paris, https://doi.org/10.1787/34061b21-en.
← 1. The latter was reinforced by the fact that co-financing rates tend to be lower for high-wage workers since social security contributions are capped (as in most other countries).