The Bank of Spain published an analytical paper this week that confirms how effective temporary employment regulation files, known as ERTEs, were in cushioning the shock of the pandemic. When ERTEs are short in duration, workers tend to return to their duties, but the effect can wane if the period extends beyond a few months.
Longer ERTE periods tend to lessen their effectiveness, particularly among certain groups such as younger workers, those on temporary contracts, and employees in service activities that were heavily hit by restrictions. Between 2020 and 2021, ERTEs were widely used to weather the ailing economy caused by the pandemic. The model indicates that the probability of returning to work after an ERTE remains high on average, though it declines as time passes.
Specifically, the study measures ERTE effectiveness by the share of workers who resume active employment in the following quarter. The data show a clear gradient: roughly 65 percent of workers with a shorter ERTE return to work in the next quarter, while longer ERTEs of six months see about 41.1 percent returning, and nine-month ERTEs drop to around 26.2 percent.
ERTEs provided coverage for more than 3.5 million workers at the peak of the pandemic in Spain. With data up to October of this year, the tool now covers about 20,000 workers, reflecting a drastic reduction in its use as the health situation improved.
In the second quarter of 2020, nearly one in five workers faced an ERTE suspension. This share fell sharply as the health situation improved, reaching about 0.3 percent in the last quarter of 2021.
The incidence of ERTEs was somewhat higher among younger workers and those with lower education levels, and it was markedly higher in sectors heavily restricted by pandemic measures, such as hospitality and entertainment.
ERTEs have been viewed as a viable mechanism to preserve work relationships, with the institution noting that their relative and absolute effectiveness is greater for shorter durations.
However, as the most acute crisis phases receded, continuing in an ERTE could harm a worker’s job prospects due to deterrence and prolonged inactivity in seeking alternative employment. This inactivity can erode job skills and does not always offset the value of the preserved employment relationship.
The Bank of Spain compares ERTE outcomes with unemployment or inactivity and finds that the probability of returning to work is consistently higher for those in ERTE than for those who are unemployed or idle outside of ERTE coverage.
Overall, the report confirms that ERTEs played a meaningful role during the Covid crisis by supporting reinstatement of workers affected by the crisis, though the magnitude of the advantage over unemployment diminishes as ERTE durations lengthen or as the broader labor market improves.
For example, the analysis indicates that employability gains are larger for men in the short term, but these gains diminish more quickly with longer ERTE durations. In contrast, age appears to bolster the lasting impact of ERTEs, and permanent contracts tend to show stronger, more enduring effects than temporary ones. Education level also shapes outcomes, with less-qualified workers experiencing more pronounced reinstatement effects in many cases.
Sectoral differences are evident as well: industry shows greater and more persistent relative effectiveness of ERTEs, whereas some service subsectors see the benefits converge with those of similar workers who are unemployed or inactive without ERTE support after three quarters.
The Bank of Spain cautions that these findings should be interpreted with care, as more data will help refine the conclusions. The overall takeaway is that ERTEs contributed to stabilizing the labor market during the peak of the crisis and facilitated a faster return to work for affected individuals, particularly in the earlier stages of ERTE deployment.