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Published on Friday, June 25, 2021

Spain | What should be done about furloughs?

One of the greatest challenges to be discussed in Spain over the coming months will be how the furlough system should be reformed.

Key points

  • Key points:
  • In addition to having a stabilizing effect, furloughs offer advantages in terms of efficiency. After an employment relationship starts, the employee's productivity takes time to reach its maximum level precisely because part of the work and how it is carried out depend on what is learnt on the job.
  • As a result of the downturn in economic activity (close to -11% for the year as a whole) and the historic elasticity of employment to changes in GDP, which stood at close 1.3 between 2008 and 2019, nearly three million jobs would have been destroyed in the Spanish economy if the furlough scheme had not been implemented, compared to the five hundred and eighty thousand actually lost, according to Encuesta de Población Activa (Labor Force Survey).
  • However, the furlough system also has disadvantages. One of these is that the cost can exceed the amount necessary to preserve employment if the exemptions and discounts are given to companies and workers that do not need them. This is known as the “deadweight loss” effect.
  • Secondly, some furloughs will be used to help sustain companies and jobs that are no longer viable due to the excess fall in revenue in some sectors, changes in consumption habits and the mobility of the population.
  • The main objective of the current public employment policies should be to provide the necessary tools to ensure that furloughed workers with little chance of returning to their jobs are able to redirect their professional careers more easily.

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