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18 e mployment in Crisis

6. Such studies include Elsby, Hobijn, and Sahin (2013) and Shimer (2005). 7. Monetary and fiscal stabilization policies are powerful tools to respond to crises. Although these policies are crucial to crisis mitigation, they are not the main focus of this study. 8. In contrast to the United States’ experience during the COVID-19 crisis, job retention programs in several European countries have served millions of workers. The magnitude of the human capital destruction (scarring effects) averted by these programs depends on: (a) the estimated losses in human capital that would have been caused by the period of unemployment or nonemployment; (b) the unemployment permanently averted—that is, the workers in these programs who would otherwise have been fired (directly or indirectly via firm bankruptcy or closure for lack of liquidity); and (c) the unemployment temporarily averted—that is, the workers who are supported now but will be fired after the end of the support period, or even before then, because of their firms’ bankruptcy. In terms of costs per worker, such programs make sense from the governments’ perspectives, because without these programs, unemployment insurance would have to be paid in full to each laid-off worker. Three key choices when implementing such programs are their size, their duration, and their coordination with existing unemployment insurance and social assistance. They are adequate for temporary, short-lived shocks but not for extended crises. As a crisis continues, key trade-offs arise: should the program continue to support all workers or only some? If the program is targeted, how should it choose who to support and for how long? In case of longer spells of nonemployment, should the program continue to support jobs or shift to supporting workers in case their jobs have been eliminated?

These decisions are difficult, and a combination of instruments might be needed to avoid large increases in poverty and unemployment when job retention programs are abruptly terminated.

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