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Softening the blow: Job retention schemes in the pandemic

Author

Listed:
  • Jolan Mohimont

    (: Economics and Research Department, National Bank of Belgium)

  • Maite de Sola Perea

    (Economics and Research Department, National Bank of Belgium)

  • Marie-Denise Zachary

    (Economics and Research Department, National Bank of Belgium)

Abstract

We evaluate the welfare effects of the economic consequence of the COVID shock and job retention schemes (JRS) in a heterogenous agents DSGE model calibrated to the euro area. We find that the welfare cost of the COVID shock is large. Households who hold a limited stock of financial wealth and are unable to perfectly insure against shocks to their labor incomes experience larger welfare losses. JRS implemented in response to the pandemic have large favorable welfare effects and benefit all households. These gains are particularly strong for liquid-asset-poor households, especially for those that are also unemployed or furloughed. JRS bring stronger benefits in economies characterized by labor markets with low exit/entry rates from/to unemployment.

Suggested Citation

  • Jolan Mohimont & Maite de Sola Perea & Marie-Denise Zachary, 2022. "Softening the blow: Job retention schemes in the pandemic," Working Paper Research 414, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202209-414
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    File URL: https://www.nbb.be/fr/articles/softening-blow-job-retention-schemes-pandemic
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    More about this item

    Keywords

    COVID-19; job retention schemes; furlough; household inequality; idiosyncratic risks; labor markets; welfare cost; DSGE.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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