Reemployment premium effect of furlough programs: evaluating Spain’s scheme during the COVID-19 crisis

Abstract

This paper presents an average treatment effect analysis of Spain’s furlough program during the onset of the COVID-19 pandemic. Using 2020 labour force quarterly microdata, we construct a counterfactual made of comparable nonfurloughed individuals who lost their jobs and apply propensity score matching based on their pretreatment characteristics. Our findings show that the probability of being re-employed in the next quarter significantly increased for the treated (furlough granted group). These results appear robust across models, after testing a wide range of matching specifications that reveal a reemployment probability premium of near 30 percentage points in the group of workers who had been furloughed for a single quarter. Nevertheless, a different time arrangement affected the magnitude of the effect, suggesting that it may decrease with the furlough duration. Thus, an analogous analysis for a longer (two quarter) scheme estimated a still positive but smaller effect, approximately 12 percentage points. Although this finding might alert against long lasting schemes under persistent recessions, this policy still stands as a useful strategy to face essentially transitory adverse shocks.

Highlights

We present a novel contribution that assesses the causal effects of furlough programs using updated microdata from the pandemic period in Spain.

We found key evidence of a robust and positive average effect (approx. 30 percentage points) of furlough schemes on the probability of being re-employed in the short run.

However, this positive effect was time-dependent and lessened when the furlough scheme was extended for two consecutive quarters (down to 12 percentage points). This result suggests effectiveness losses with time and advises against long-lasting schemes.