The uncertaintities created by the pandemic

Restructuring thermometer
June 14, 2021

June 2021 status report

The uncertaintities created by the pandemic, the end of the health restrictions and overcoming the negative impact on the market continue to loom over many sectors and companies, making it hard to determine the number of workers required at a given point, or even if it will be possible for companies to maintain their current workforce, as they wait to see whether they can recover their pre-COVID-19 volume of activity.

Human Resources and General Management at many companies are currently facing the difficult decision of whether to temporarily or permanently adjust more or less their workforce.

This decision may be aided by keeping track of the restructuring trend in the different territories. There are two factors that help us read the temperature of companies for workforce adjusting purposes: the number and behavior of temporary redundancy plans (ERTEs) and the number of permanent lay-offs.

The prevalence of ERTEs, encouraged by the government with social security contribution exemptions and repeated extensions of these exemptions (the latest until September 30, 2021 under Royal Decree Law 11/2021), is an indicator of business containment. Many companies are still waiting to see whether they will be able to endure the blow and progressively recover their activity; others are simply putting off more drastic, final measures.

On the other hand, the rise in the number of permanent lay-offs shows that the effect of the temporary measures promoted by the government (ERTEs and other internal flexibility measures to face the effects of the pandemic) is starting to wear off in many cases as, over time, the company’s economic, production and organizational difficulties have become a structural, unsustainable and irreversible affliction.

How are ERTEs evolving?

If we take a look at the official data, in 2020, over 1,000,000 people were temporarily laid off under ERTEs managed through the Ministry. For example, 111,353 suspension of work contracts or reduction of working hours procedures were processed in Madrid last year, affecting a total of 587,647 workers [1]. Nonetheless, 2021 shows a different trend; in January, 12,078 people were temporarily laid off under new ERTE plans. This figure fell to 11,848 in February and sharply to 4,576 in March. The decline continued in April, with 3,832 people affected. Therefore, the figures have fallen drastically in this region.

In Catalonia, 130,330 suspension of work contacts and reduction of working hours procedures were processed in 2020, affecting a 1,044,763 workers. Fast-forward to January 2021 and the data show that 36,144 people were temporarily laid off under ERTE plans. That figure fell to 21,773 in February and sharply to 8,250 in March, while in April, it was only 3,118.

Therefore, taking these two regions as an example, it is obvious that in the first few months of 2021, the number of people laid off under ERTE plans has plummeted.

Recovering activity and emerging from the crisis could account for the progressive end to ERTEs, but it could also be that the measure is not effective enough, given the signs that the circumstances affecting companies are not temporary, requiring them to adjust their workforces to a different reality with more drastic measures, including permanent lay-offs.

However, reality is more complex because of the anti-termination measures approved by the government during the health crisis. As part of these measures, lay-offs due to COVID-19 were limited; companies committed to maintain jobs in exchange for social security exemptions; and fixed-term contracts were extended, which will delay many decisions about the workforce for a few months. Laying off workers over the age of 50 can also prove more costly, as there is an obligation to contribute between €60,000 and €100,000 to the Public Treasury for every dismissed person in this age group.

What do the official data on permanent lay-offs indicate?

The information published on the number of collective redundancies in Catalonia shows that 226 of these procedures were processed throughout 2020, affecting 7,936 workers, while, from January through April 2021, i.e., in just four months, over 134 collective redundancies were processed, half the figure of the whole previous year. Some 6,238 people have been laid off, i.e., almost 80% of the total workers affected last year.

In Catalonia, February 2021 also proved the month with the highest number of permanent lay-offs so far this year, as a considerable fall was registered in March and April. This could be explained by job retention commitments still applying, some activity restarting after the tough health restrictions during the third wave of the pandemic, progress in the vaccination program, and companies waiting to see how the demand for products and services will evolve.

Based on the official numbers of collective redundancies processed through the Ministry of Employment—affecting several autonomous regions—in 2020, 8,614 workers were laid off, while a total of 4,181 people were laid off under these processes between January and March 2021. Essentially, in one quarter, practically half of all last year’s people were laid off. These numbers will increase in the next few months because of the rise in these processes in certain sectors, particularly banking.

Therefore, the information shows an overall increase in the number of collective redundancies since the start of 2021.

We will have to wait to see how these numbers develop to establish the extent to which they are distorted by legal obstacles preventing contract termination or confirm the structural damage caused by the pandemic to company viability. In addition, there are currently some collective redundancies announced in the media under which a significant number of workers could be laid off, which will clearly affect this analysis.

Ultimately, the official data do not enable us to determine whether the anti-redundancy measures are truly preventing more lay-offs or merely postponing the decisions while those measures are in force.

In any case, it seems clear that we will continue to hypothesize over the coming months and to look for labor measures aligned with the needs of each company to enable it to keep going.

[1] Data for March through December 2020

June 14, 2021