Fiscal Policy Measures Saved at Least 200,000 Jobs during the Covid-19 Crisis in Austria

| Press release

Fiscal policy measures aimed at mitigating the economic impact of the Covid-19 lockdown measures in Austria led to higher employment by about 200,000 persons in 2020 and by about 41,000 persons in 2021. This is a key result of a large-scale macroeconomic simulation study carried out by EconPol Europe. Out of the 200,000 persons who remained in employment in 2020 thanks to fiscal measures, 191,000 can be attributed to short-time work schemes alone. “Short-time work schemes were particularly successful in preventing employment from plummeting in line with real activity. Our analysis shows that they are an appropriate measure to support income and to help companies in maintaining their human capital,” says Klaus Weyerstrass (IHS, EconPol), the study’s author.

Other fiscal policy measures targeted at supporting employees and companies are tax reductions and tax deferrals, fixed cost subsidies and loss compensations, as well as policies to stimulate investments. The estimated effect of these measures on the labor market and on private consumption is stronger than on real GDP, which increased only by about 0.9 percent in 2020 and in 2021, respectively, according to the study. “In a situation in which the recession is caused by government measures to restrict opportunities for consumption, support for private consumption is not the recommended fiscal policy reaction. However, support for those employees and self-employed who are affected by the closure of some businesses is appropriate,” Weyerstrass explains. 

The Austrian stimulus package is the third largest within the EU, amounting to about EUR 50 billion. Despite its size, the study reveals a relatively low increase in public debt, the deficit ratio being two percentage points higher in 2020 and about 0.75 percent higher in 2021. However, due to automatic stabilizers (lower tax revenues and higher unemployment payments), the overall increase in the debt level is substantial. Therefore, fiscal policy measures should be withdrawn as soon as the pandemic is overcome in order to safeguard the sustainability of public finances, according to Weyerstrass. “Companies that would have left the market anyway should not be kept alive artificially. This would hamper structural change. For the same reason, short-time work schemes should be offered only as long as the containment measures or other pandemic-related problems such as supply-chain disruptions prevail.”