Softening the Blow: Job Retention Schemes in the Pandemic

We evaluate the welfare effects of the temporary job retention schemes (JRS) implemented in response to the COVID-19 pandemic in a heterogeneous agents DSGE model calibrated to the euro area. JRS have large favorable welfare effects and benefit all households. These gains are particularly strong for liquid-asset-poor households, especially for those that are also unemployed or furloughed. The job protection component of JRS explains almost all the welfare gains of JRS, while their high level of generosity plays a minor role and has ambiguous net aggregate welfare effects. JRS bring stronger benefits in economies characterized by labor markets with low exit/entry rates from/to unemployment.