The protection gap: COVID-19 exposure, job retention schemes and financial strain among older workers in Europe

Abstract

Europe’s job retention schemes were the largest labour market intervention in the continent’s post-war history. We ask whether they insulated older workers’ household finances from the health shock of COVID-19, and find that they did not. Using the Survey of Health, Ageing and Retirement in Europe, we study 6,709 adults aged 50 and over across 26 countries who were employed before the pandemic, and relate household COVID-19 exposure to difficulty making ends meet in mid-2020, conditioning on the same household’s financial situation measured in the pre-pandemic round. Household symptoms are associated with a 5.4 percentage point increase in the probability of financial difficulty (p<0.01), and household hospitalisation or death with 19.2 points (p<0.05). We then decompose these associations. Job loss carries between 2 and 12 per cent of the total association, and is statistically distinguishable from zero in only one case. Between 88 and 98 per cent of the link between health shock and household hardship runs through channels other than employment separation. Consistent with an interpretation in which retention schemes closed the separation channel for those they covered and left others exposed, the association with severe household exposure is 0.546 among the self-employed and a statistically indistinguishable 0.075 among employees. Pensioners, who face the same health shock without labour market exposure, show no association. The finding is not that employment protection failed but that it was aimed at the wrong margin: hardship arrived through income reductions short of job loss, through out-of-pocket and indirect costs, and through the categories of worker that retention schemes were never designed to reach.