Authors: José Ignacio Conde-Ruiz (FEDEA, Esade), Jorge Galindo (EsadeEcPol)  & Carlos Victoria (EsadeEcPol) 

Though the Covid-19 crisis’ origin is health-related and, in principle, has nothing to do with companies’ economic situations, it is going to temporarily paralyse economic activity.

Furthermore, we do not know how long the social distancing and quarantine measures will be in place. Though essential to help to stop the spread of the virus, they will unavoidably reduce demand, especially for services in the hotel, restaurant, transportation, tourism and physical activity industries.

At the same time, other industries are already facing difficulties in terms of maintaining their production levels due to supply-related problems (companies whose employees cannot go to work or companies closing because they cannot guarantee their workers’ safety).

Without doubt, a large part of the country’s productive capacity will be affected one way or the other.

Logic would indicate that the pandemic’s negative impact will be temporary. However, this impact may have a long-lasting effect on both companies and workers.

Coordinated international response with significant and expansive fiscal measures and the appropriate monetary policy from the European Central Bank will avoid possible tensions in debt markets, a fundamental condition to ensure we have the financial muscle we need to overcome the immense challenges ahead.

That notwithstanding, every country has its own set of unique circumstances. In Spain, the measures announced by the Government through Royal Decree-Law 8/2020 to mobilise 200 billion euros and ensure that the health crisis does not affect the real economy are a move in the right direction.

However, this crisis has continued to evolve both quickly and continuously. To stay ahead of possible future threats, we propose several alternative measures focusing on one of the primary sources of risk for Spain: the exposure to external shocks amongst the weakest segments in the country’s job market.

1. A segmented job market

Spain’s job market stands out for the high number of temporary contracts, consistently above the EU-28 average (around 10% over the last few years).

In addition, this area is precisely where companies tighten their belts when crises emerge. For example, the temporary job rate decreased in the first years of the 2008 crisis due to the mass destruction of temporary jobs. This is because these employees are entitled to lower compensation packages during recessionary periods or do not specifically have to be dismissed given that companies can simply choose to not renew their contracts.

With the economy’s recovery, however, the temporary job rate began to rise again until becoming one of the highest in the European Union as we forecast in a recent EsadeEcPol report. This elevated temporary job rate implies added fragility for the Spanish economy given today’s Covid-19 crisis.

However, we cannot attribute this Spanish anomaly solely to different production models: The temporary job rate in Spain is the highest in each and every industry, leaving a large number of workers exposed to the impact of crises such as the current one.

In addition, these temporary contracts primarily affect young people, women, immigrants and unskilled labourers (nearly 80% in Spain compared to 50% in the rest of Europe) who, for the most part, would voluntarily opt for other types of contracts.

Table 1. Temporary job rate by gender, age, education level and country of origin

Source: Eurostat.

This situation is made all the worse by the fact that a high percentage of these temporary contracts span less than 6 months: 56.3% amongst those who know how long their contract lasts.

In addition, the combination of temporary job contracts and part-time work schedules implies that only 55% of workers (approximately 11 million of the nearly 20 million employed individuals) are considered full-time salaried employees with an indefinite contract. To make matters worse, the number of self-employed workers in our country is growing: nearly 16% of all those employed.

Table 2. Temporary contracts by duration

Source: Spanish Labour Force Survey (EPA).

Finally, the possibility of working remotely, a practice that would help to buffer the pandemic’s impact on some industries, is scant in our country. For example, according to a 2018 Eurobarometer report on the work-life balance, only 10% of workers in Spain can take advantage of this option. This includes those who indicate that they do not have the flexibility and means needed to telework and those for whom working remotely is not a common practice (if at all), despite having the means to do so.

In addition, the possibility of working remotely is extremely skewed depending on the workers’ level of education: Amongst those who abandoned their studies before the age of 16, 7.2% responded that they worked remotely, compared to 10.5% of those who finished their studies after turning 20.

2. Urgent employment measures

Given the above, we propose a series of specific and urgent measures for different types of workers: self-employed workers, those with temporary job contracts and those with indefinite contracts.

We believe that, in the current situation, this approach is beneficial – complex measures or too many requirements would slow down their implementation. Given the nature of this crisis, we need to make sure that resources reach vulnerable workers as quickly as possible.

Self-employed workers

On the one hand, postponing the monthly self-employed worker Social-Security quotas throughout this state of emergency would be worthwhile. On the other, self-employed workers whose income falls below a given threshold should be exempt from paying the minimum monthly quotas.

• Postponing the self-employed worker quota. In Spain, there are a total of 3,269,672 self-employed workers with a mean taxable income of 1,143 euros per month, representing an average monthly quota of 346.32 euros. Consequently, the financial cost of postponing these payments would total 1.13 billion euros every month.
• Exempting self-employed workers from paying the minimum quota. Once we have overcome the health crisis, self-employed workers whose income has been severely affected (demonstrating that their income has been below a given threshold), should be exempt from paying the minimum Social-Security quota. Currently, this minimum monthly amount is 286.14 euros. Since we do not know how much self-employed workers will actually earn, we can consider three possible scenarios:
  • Optimistic: the percentage of self-employed workers whose income falls below the minimum threshold is 10%.
  • Intermediate: 15% of self-employed workers earn less than the established minimum.
  • Pessimistic: 20% of self-employed workers’ salaries fall below the minimum threshold.

Depending on the scenario, the cost of this measure would range from 93 to 187 million euros per month.

Table 3. Estimated cost of exempting self-employed workers’ social security payments

Source: EsadeEcPol, based on data from the Spanish Ministry of Labour and Social Economy.

Employees with temporary contracts

Workers with temporary contracts could possibly face one of two situations: on the one hand, their contracts are not renewed or they are dismissed, and, on the other, their companies implement a temporary labour force adjustment plan (ERTE in Spanish).

• First, if the temporary contract is not renewed (or the workers are dismissed), affected workers should be provided the corresponding unemployment benefits, whether or not they have worked the time stipulated to receive those benefits. Given that we do not have data on the number of temporary workers with the right to receive these unemployment benefits or not, we can assume that all of them would receive non-contributory benefits (in this case, equal to 80% of the Spanish minimum wage index (IPREM), that is, 430.27 euros per month). This implies a lower estimation level.
• In the second case, that is, temporary workers whose contracts will be renewed or who will not be dismissed (normally, those with longer contracts), we should consider four possible scenarios in terms of public coverage for a portion of their salaries: covering specifically 25%, 50% and 75% of their salaries and a fourth option representing a set amount equal to the minimum inter-professional salary (SMI) of 950 euros.

Unemployment benefits for temporary workers whose contracts are not renewed or if they are dismissed

We can assume that the workers in this category are those with contracts lasting under 6 months. According to the Spanish Labour Force Survey (EPA) and bearing in mind certain conditions, there are 2.44 million workers in Spain today with contracts lasting less than 6 months.

The estimated cost of paying unemployment benefits to workers in this category would vary depending on three scenarios (optimistic, intermediate and pessimistic) in terms of different job destruction rates (10%, 25% and 40%, respectively) amongst this group of workers: total estimated costs would vary from 105 to 420 million euros per month.

Table 4. Estimated cost of providing unemployment benefits to temporary workers

Source: EsadeEcPol, based on data from the Spanish National Statistical Institute or INE (EPA).

Temporary workers affected by temporary labour force adjustment plans

In this case, we can assume that the group potentially affected by labour force adjustment plans includes workers with contracts lasting more than 6 months. According to the Spanish Labour Force Survey (EPA), this would currently imply 1.96 million workers. As in the above cases, we explore various scenarios to calculate the public coverage of a part of their salaries based on the following two variables:

1. First, as in the above estimates, we contemplate three possible scenarios (optimistic, intermediate and pessimistic) with different rates of job destruction for this group of workers (10%, 15% and 20%, respectively).
2. At the same time, we consider four types of coverage for salaries: three which cover a given percentage of the average salary for this group of workers and one which covers the salary up to the minimum inter-professional salary.

The associated cost would range from 68 to 409 million euros per month.

Table 5. Estimated cost of providing salary compensation to temporary workers

Source: EsadeEcPol, based on data from the Spanish National Statistical Institute or INE (EPA).

Workers with indefinite contracts

Lastly, for workers with indefinite contracts, we propose the State provide a percentage of their salaries while any labour force adjustment plans remain in place. This should be applied in especially vulnerable industries (for example, those affected the most or in which a higher number of jobs are destroyed), just as the Danish Government has already announced.

Once more, we contemplate three job destruction scenarios and four levels of coverage. That notwithstanding, in this case, we have to bear in mind the variety of industries affected:

1. In industries with a high rate of job destruction, affecting 50% of indefinite workers in any scenario. This category includes the industry we believe to be the most affected both directly and intensely by the spread of the virus and the containment measures adopted in Spain: hotels, restaurants and cafés.
2. In industries with moderate risk, job destruction would oscillate based on three scenarios. This category includes industries which might be affected differently by the pandemic, the ensuing economic crisis and the containment measures adopted: manufacturing; construction; wholesale trade; retail trade; motor vehicle repairs; real estate; administrative and auxiliary services; artistic, recreational and entertainment services; and other services (association-related activities, computer repair, personal effects and domestic-use items and other personal services).
3. The remaining low-risk industries would not see significant reductions in the number of indefinite workers.

Table 6. Indefinite workers by activity area (standard industrial classification, CNAE) and level of risk

Source: EsadeEcPol, based on data from the Spanish National Statistical Institute or INE (EPA).

The total cost of this measure would range from 540 million euros every month in the optimistic scenario to 2.5 billion euros per month in the pessimistic case.

Table 7. Estimated cost of paying salary compensation to indefinite workers

Source: EsadeEcPol, based on data from the Spanish National Statistical Institute or INE (EPA).

Global assessment

The cost of implementing the measures proposed would range from 800 million euros every month in the most optimistic scenario (the one requiring the least coverage) to 3.5 billion euros monthly in the most pessimistic scenario (the one providing the highest degree of coverage).

In the intermediate scenario in which salaries for temporary and indefinite workers affected by labour force adjustment plans would be covered up to the minimum inter-professional salary (SMI), the total cost would represent 1.9 billion euros every month.

Similarly, the number of affected workers would range from 1.7 million workers in the optimistic scenario to nearly 3.6 million in the pessimistic case. In the intermediate scenario, this figure would total 2.7 million workers.

Table 8. Summary of costs and affected workers (different scenarios)

Source: EsadeEcPol, based on data provided by the Ministry of Labour and Social Economy and the Spanish National Statistical Institute. To calculate salary compensation figures, the authors consider different salary compensation levels (optimistic: 25%; intermediate: minimum inter-professional salary; pessimistic: 75%).

These measures will most likely need to be complemented with other actions if the economic situation worsens. In particular, we believe it is essential to support those workers – whether they have been laid off or are self-employed and have seen their activity drop – that don't have other income sources, or have to sustain their family.

3. Immediate measures

Given the uncertainty regarding the duration of the current crisis and, consequently, the time the Spanish population will remain quarantined, it is paramount the Government define an action plan should this state of emergency endure.

For this, many of the activities whose demand has fallen will have to be refocused towards other areas where demand may increase. In other words, the Government should facilitate the flexible reassignment of employees from the most affected activity areas (hotels and restaurants, tourism, transportation, automobiles, entertainment, shopping malls, etc.) to other areas where demand has increased or may potentially do so (distribution, supply, online services such as education and e-commerce, food and beverages, health, communications media, etc.).

In particular, and as occurred in China, sales channels based on traditional brick and mortar stores and establishments will have to shift towards home delivery models. The following measures will be required for this:

1. Safety protocols have to be defined for all the workers in this industry during the state of emergency. In particular, the Government has to ensure that the home delivery of food, medicine and other goods and services is compatible with measures to contain the spread of the virus. These protocols would not only have to guarantee the safety of the workers (similar to protocols some companies have already implemented), but also that of the consumers, thereby increasing the demand for these types of services. The Government also has to make certain that the lack of protocols in this area does not force companies already operating in the home-delivery sector to abandon the latter.
2. The Government should make it easier for companies that have seen a drop in their demand to cede their workers to other companies whose demand is increasing. Currently, this cession of workers is only possible through temporary employment agencies and within groups of companies.
3. Companies have to be able to reorient their sales channels. Thus, companies should be able to use legal procedures regarding functional and geographic mobility and substantial functional job modification factors to adopt their organisational measures in this direction.
4. A fiscal incentive plan is fundamental for companies to be able to promote telework, complementing the measures the Government has already adopted to support the digitalisation of SMEs.