Policymakers typically respond to labor market shocks—such as the one caused by the COVID-19 pandemic—through two types of policy approaches: protect the economy to preserve employment or provide direct supports for families and individuals affected by the crisis.

These approaches are not mutually exclusive. However, in a world of scarce resources, policymakers tend to choose one or the other. Economists and other labor market researchers have tried to understand how and when these two policy types are most efficient. For example, recent evidence (PDF) suggests it made sense for European countries to focus resources on insuring jobs, rather than workers, because they already have strong welfare policies relative to the US.

To illustrate the types of policy actions governments took in response to the COVID-19 pandemic, I identified and categorized an inexhaustive list of policies implemented by several countries (mostly European) to help businesses, particularly small ones, survive and retain workers during the pandemic. These policies could inform US decisionmakers during future crises.

  • Government-backed business financing
  • Business costs compensation.
  • Flexible grants.
  • Insolvency reform.
  • Consumption vouchers.

More recently, demand has reached pre-pandemic levels in many countries, and labor markets have tightened considerably. In response, some countries have instituted policies to help businesses fill open positions. For example, Israel is incentivizing returning to work by offering unemployed people a grant worth 40 percent of their unemployment benefits during the first four months of work, plus an additional amount.

Read the full article about small business protection by Jorge González-Hermoso at Urban Institute.