The rising tide lifts all boats? Income support measures for employees and self-employed during the COVID-19 pandemic

Abstract

This paper examines the extent to which fiscal policy protected household incomes in the second year of the COVID-19 pandemic in EU countries. Using microsimulation techniques and detailed Eurostat data, we analyse this impact separately for employees and the self-employed. We show that while on average income protection was similar for employees and the self-employed at the EU level, the heterogeneity both between and within countries was much higher for self-employed households in 2021. For employees, both monetary compensation schemes and unemployment benefits played a similar role in absorbing the income shock, whereas for the self-employed it was mainly monetary compensation schemes and much less so unemployment benefits that stabilised their income. Overall, we find that monetary compensation schemes, together with automatic stabilisers, absorbed a substantial part (67%) of the market income shock in 2021, albeit with a reduced cushioning effect compared to the previous year (74%). Monetary compensation schemes alone account for almost a third of this cushioning effect in 2021. Our paper underlines the importance of targeted policies to ensure comprehensive support for vulnerable households amid ongoing economic uncertainties.