Finance

Spanish government hails impact of furlough scheme

The Spanish government says it has disproved predictions of a coronavirus-driven surge in unemployment, in an indication of the effectiveness of furlough schemes across Europe.

In an interview with the Financial Times, José Luis Escrivá, social security minister, said forecasts of unemployment of more than 20 per cent by the OECD and the Bank of Spain had failed to take account of the impact of the Spanish schemes, known as ERTEs, and had assumed it would delay rather than prevent mass dismissals.

“Those predictions have completely failed,” said Mr Escrivá. “Bank of Spain forecasts for the scenario that has materialised — second and third coronavirus waves — talked about an unemployment rate of 22 per cent. But we ended last year with an unemployment rate of 16 per cent and it is going to be around that level for this year too.” He added that the difference between 16 and 22 per cent of the Spanish labour force was more than 1m workers.

Overall, Europe’s labour market has been largely shielded from the fallout of the pandemic by government-backed furlough schemes for more than 40m people.

While more than 5m people in the US have lost their jobs since the pandemic hit in February, joblessness rose far less in the eurozone — increasing by less than 1.8m in the same period and pushing the bloc’s unemployment rate up from 7.2 per cent to 8.3 per cent.

Mr Escrivá argued that the furlough programmes’ impact had been most notable in Spain, which has long had to contend with some of the highest unemployment rates in the eurozone, with pre-pandemic jobless rates of about 14 per cent.

At their April peak, the country’s ERTEs schemes covered some 3.6m people — a figure that fell to 755,000 at the end of last year. So far, most people who have left the schemes have remained in their old jobs.

By contrast, the number of people on the French furlough scheme fell from 8.4m in April to 1.8m in October, but returned to 2.9m in November after the country entered its second coronavirus lockdown. Germany’s Kurzarbeit programme peaked at almost 6m in April before falling to just below 2m in October. 

While the Spanish rules prevent companies from sacking people for six months after they participate in a coronavirus ERTE, the number of people covered in late July had already fallen by more than two-thirds from its peak, to about 1m. This implies that companies have not sacked staff even when there is no government constraint on them doing so.

“There has practically been no structural job destruction,” Mr Escrivá said. He added that Spain would seek to keep ERTEs at the heart of its labour policies in the future, so that people can go on training schemes rather than face dismissal. The current emergency scheme, which had originally been due to expire in June 2020, has now been extended to the end of May this year. Mr Escrivá said the cost was “significant but manageable” at around €5.5bn for the latest four month extension.

Analysts at both the OECD and the Bank of Spain acknowledge that they underestimated the extent to which the ERTEs would decouple jobless rates from Spain’s plummeting 2020 GDP, which the government expects will shrink by more than 11 per cent. 

The OECD forecast in June that unemployment for the last quarter of 2020 would hit between 22-25.5 per cent and called soon after for governments around the world to start scaling back furlough schemes.

But, in revised estimates last month, the organisation put the Spanish jobless rate at 17 per cent for the fourth quarter of 2020, predicting that it would remain at around the same level for 2021 as a whole.

Similarly the Bank of Spain has also revised down its predictions for unemployment this year and next.

Spain’s economy still faces big challenges this year if jobs are to be preserved, with a hefty gap between government projections of almost 10 per cent growth and outside forecasts. This week, the BBVA, the bank, estimated 2021 growth at 5.5 per cent.

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