Is there life beyond the Spanish government’s aid to furloughed employees by COVID-19?

Abstract

This paper examines the perceptions of firms in April 2020, one month after the Spanish Government declared the state of alarm, about how the COVID-19 pandemic will affect their business activity in the following months, and what employment decisions they expect to make in response. The data for the study was collected by the Government of the region of Aragon (Spain) through a survey of a non-randomly selected sample of firms located in the region. In addition to prospects and intended actions, firms were asked whether or not they had applied for ERTE aid (the Spanish job retention scheme to contain the pandemic crisis). We find that firms participating (voluntarily and anonymously) in the survey anticipated rather well the severity of the effects of the pandemic in the following months. The ERTE aid helped firms to maintain the jobs of their inactive employees, while firms that did not ask for aid responded by laying off employees. Further, the ERTE aid helped to maintain the jobs of furloughed employees, but the firms receiving ERTE aid expected to lay off the same proportion of employees as firms without that aid, controlling for the different anticipated effects of the pandemic in the two groups of firms.