Spain may extend emergency wage support again in 2021

Bloomberg

Spain is prepared to extend its furlough program beyond January, Social Security Minister Jose Luis Escriva said, in the clearest statement yet on the future of the wage-support policy.
“We stand ready to reevaluate the situation,” Escriva said in an interview with Bloomberg News, one week after the government agreed to prolong its previous aid measure through January 31.
A further extension could protect hundreds of thousands of at-risk jobs in a country that already has one of the region’s highest rates of unemployment and which is also suffering one of its most dramatic outbreaks.
Escriva said the program is currently helping around 685,000 employees, about two-thirds of whom haven’t returned to work since pandemic forced a lockdown in March. The number of furloughed workers could increase in coming months, he added, as local governments in Madrid and elsewhere restrict movements to contain infections.
Furlough programs have been a pillar of Europe’s economic response to the pandemic, helping to cushion the fallout on labour markets. While such measures were originally intended to be temporary, the persistent health crisis has forced governments including Germany, France and Italy to extend the aid.
At its peak in the spring, Spain’s furloughs were protecting 3.4 million jobs. But the program still hasn’t been able to prevent a jump in joblessness. The central bank expects it to reach around 20% and hover near that level for at least the next couple of years.
The government has extended the furlough program twice, most recently with an agreement reached on September 29, the day before the latest plan was set to expire. While an extension was expected, the eleventh-hour accord left businesses and employees complaining about how much financial suspense it had created for them.
Escriva acknowledged the heightened uncertainty but he said it reflected just how long it took to hammer out a deal with labor unions and employers about the social contributions the government should pay. He also defended the policy of short-term extensions.
“Our approach of changing things every three or four months allows us to be more targeted,” Escriva said.
The new furlough plan provides greater coverage to hotels, travel agencies and other businesses that have suffered steep losses in revenue because of the pandemic.
“These are the sectors that must be supported because these are solvent sectors that are affected, genuinely affected, in a significant way,” he said. The new program is targeted to avoid propping up “zombie” companies that won’t survive, he said.
Under the latest plan, the government will cover 85% of employers’ social security contributions for small- and medium-sized businesses in hard-hit sectors that meet specific criteria. That portion falls to 75% for companies with more than 50 employees. The administration will continue to subsidize around 70% of the wages of furloughed employees.
Those new measures will apply to a maximum of around 400,000 workers. The government is prepared to extend the program beyond Jan. 31 because many businesses won’t see a pickup until at least Easter, when Spain’s tourism season typically kicks off, Escriva said.
Other companies, such as restaurants and bars, can tap another category within the plan that is less generous. It’s open to firms whose revenue has fallen because of new government restrictions meant to stem the spread of the virus. Escriva said it’s unclear how many businesses will apply for this support given the uncertainty around the virus and the containment measures.
Escriva and other government ministers are also working with unions and business leaders to create an effective training plan for employees who are likely to be furloughed for at least the next several months. The aim is to make such a program permanently available for specific sectors — with the government subsidizing labor costs on the condition that idled workers participate in the training, he said.
Spain has struggled in the past to improve the skills of jobless or idled workers, which has exacerbated the country’s high structural unemployment.