The labour market impact of COVID-19: early evidence for a sample of enterprises from Southern Europe

Abstract

PurposeThe choice of Southern Europe is partly based on the observation that the sample includes a number of countries whose economies faced more severe difficulties than elsewhere in Europe. Economically they were less able to absorb the economic shock posed by COVID-19. It is also partly based on the characteristics of the pandemic. A number of countries in the sample were amongst the earliest in Europe to be hit by the pandemic and a several were harder hit in terms of both morbidity and mortality.Design/methodology/approachThis study uses evidence from World Bank enterprise surveys of a sample of firms from six countries in Southern Europe. It examines the early evidence of the effects of COVID-19 on labour markets. The economic consequences potentially cover a wide range of issues. The focus of this study is on firm level evidence of the effect on labour. The evidence and the analysis are provided at a time when the pandemic is still in progress. The authors use both traditional regression analysis and IPWRA to assess the joint effect of loans versus government support on, firstly, the change in sales revenues and, secondly, the number of weeks that the firm would expect to survive with no sales revenues.FindingsThe study suggests that, despite efforts to support firms and hoard labour, there is a prospect of a significant number of firm closures with a consequent loss of employment. Temporary firm closures also represent a substantial loss of labour weeks. These are partly related to a significant number of workers subject to furloughs. The empirical findings suggest that COVID-19 cases and deaths have directly affected firm sales but government containment measures, particularly closures, have more strongly affected firms. Losses of sales were unsurprisingly related to losses of employment. Remote working has contributed to sustaining employment but online business has not affected most sectors.Research limitations/implicationsThe future progress of COVID-19 and government containment measures is uncertain, and the full economic consequences will probably continue to emerge after the end of the pandemic. The full extent of the impact on labour will probably not be the first of these. There are obvious advantages in seeking to learn lessons from the early stages of the pandemic but there are also obvious constraints. The full economic consequences will take longer to emerge than the pandemic itself and the full consequences for employment will take longer to be evident than many other economic effects.Practical implicationsBoth temporary closures and furloughs impose costs that will be borne by firms, workers and government. The effects of COVID-19 on firms differ across sectors. Adverse effects tend to be higher in hospitality, non-essential retail and travel. That many firms lack the capacity to survive further temporary closures of a similar duration to those in the earlier stages emphasises that the support provided in the near future is of critical importance to control employment losses through permanent firm closures. A long-term perspective suggests neither permanent closure nor laying off workers may be the best response to a temporary crisis in demand. A stakeholder model of the firm would often suggest that it is not an optimal for the point of view of workers or the wider economy either. Both imply a preference for labour hoarding.Social implicationsThe most affected are sectors with a high proportion of female workers and, in consequence, most of the countries in the sample exhibit an early decline of the already lower than average share of women in employment.Originality/valueThe data used have been recently released and this is the first analysis using the data to look at the consequence on firms employment decisions during the Pandemic. The case of Southern Europe is much understudied, though one of the most dramatic as to the consequences of the pandemic. From a methodological point of view, the authors use not only traditional regression analysis, but also the matching approach to identify the effect of different policy options on labour demand by firms.

COVID-19 impact on job losses in Portugal: who are the hardest-hit?

“…Hence, we found evidence that the COVID-19 crisis has increased the odds of getting fired of permanent workers by more than the ones of temporary workers. This is consistent with the finding of Webster et al (2021a) that, after the emergence of the COVID-19 crisis, there is a relatively low proportion of Portuguese firms firing temporary workers when compared to other countries or to permanent workers. It may be explained by the temporary workers' higher flexibility, particularly with respect to schedule and location (Spurk and Straub, 2020), which makes them more able to adapt to this new and disruptive context.…”

“…As occupations with low WFH feasibility and lower skill levels are typically associated with lower wages, the COVID-19 crisis seems to be contributing to increase socioeconomic inequalities. Considering our results and that, according to Webster et al (2021a), Portuguese firms face extended difficulties in implementing remote working when compared to other Southern European firms, it is thus important, in the current scenario, to invest in the digital transformation of organizations and in the training of the workforce accordingly, thus improving WFH feasibility. This process must be a joint effort by public authorities (such as the IEFP), businesses and workers and must be accompanied by an adequate reinforcement in the physical capital and technology.…”

“…The health crisis itself and the adoption of confinement measures and restrictions on economic activities by most governments led several industries to face dramatic demand contractions. Labour demand, as a derived demand, was thus consequently affected (Webster et al, 2021b) and, even though many policy tools to support labour hoarding have been aggressively put into practice by governments (Webster et al, 2021a), unemployment started to rise (e.g. Adams-Prassl et al, 2020).…”

The effects of COVID-19 on employment, labor markets, and gender equality in Central America

“…Small firms were in particular heavily affected due to their financial fragility and limited access to commercial financing (Bartik et al, 2020). A host of studies document the negative impact on small firms in terms of revenue loss, production and employment, business closures, layoffs, liquidity, and gender inequality (see, e.g., Dai et al, 2020;Apedo-Amah et al, 2020;Bartik et al, 2020;Humphries et al, 2020;Adams-Prassl et al, 2020;Borland and Charlton, 2020;Fairlie, 2020a,b;Cirera et al, 2021;Bachas et al, 2021;Webster et al, 2021;Khamis et al, 2021).…”

Covid-19, Fiscal Policies, and Small-and-Medium-Sized Firm Survival: Evidence From the Cross-Country Matching Analysis

“…However, there is no study on firm survival in developing economies during the COVID-19 pandemic. Using an inverse probability matching analysis, Webster et al (2021) found that government supports are less effective than loans for firm survival in 6 European countries. Note that, during COVID-19, European countries are more effective than developing economies.…”