HAIOPOLICY Papers

The Impact of Firm-level Covid Rescue Policies: Evidence for Wallonia

By Glenn Magerman and Dieter Van Esbroeck

April 2025

This paper evaluates the impact of Covid-19 support measures on firms in Wallonia. Using a rich set of administrative data, we analyze the allocation and effects of firm-level subsidies implemented in 2020–2021 in response to the pandemic. We find that support programs were taken up by mostly small, young firms, and in sectors most affected by lockdowns, such as retail, food services, and construction. We find no evidence of misallocation of resources towards ’zombie firms’, firms which tend to not contribute value added to the economy. Firms that received support experienced an 8–9% increase in labor productivity relative to firms that applied for, but did not obtain support. The impact on firm productivity persists at least one year after support. Moreover, receipt of support is associated with a 19% reduction in the likelihood of firm exit. These findings suggest that the support measures were effective in maintaining economic activity and avoiding mass firm failures during the crisis. These results are also consistent with findings for Flanders, reinforcing the evidence base for the design of crisis-response policies.

The Impact of Covid-19 on Employment in Belgium

by Jozef Konings, Dieter Van Esbroeck, and Xufeng Wang

November 2024

This report examines the impact of the Covid-19 pandemic on the Belgian economy in 2020 and explores how firms recovered from the release of lockdown restrictions in 2021. We make use of the data collected by the National Social Security Office (NSSO, RSZ in Dutch) to obtain information on the employment per firm and per quarter. The main conclusions of this study are the following:

1. The Belgian economy experienced a 6.1% decline in employment, measured in full-time equivalents (FTE), in 2020 compared to 2019. As the impact of COVID-19 lessened in 2021, FTE employment rose by 5.4% relative to 2020. However, when comparing the average employment level of 2021 to the pre-pandemic year of 2019, FTE remained slightly below its pre-crisis level.

2. On a quarterly basis, the largest decline occurred in the second quarter of 2020, with full-time equivalent (FTE) employment dropping by 14.7% compared to the same period in 2019, while overall employment saw only a slight decline of 0.5%. This indicates that many companies relied heavily on temporary unemployment measures. Beginning in the second quarter of 2021, after the Belgian government lifted most lockdown restrictions, FTE levels rebounded rapidly. By the end of 2021, FTE levels had surpassed pre-pandemic figures.

3. The decline in employment shows significant variation across sectors. In the second quarter of 2020, the accommodation and food service activities sector suffered the most substantial negative decrease in FTE (-71.8%), which is expected due to the complete closure of this sector. Overall, the accommodation and food service activities sector experienced a -41.7% FTE decrease in 2020. Other sectors also faced significant losses; for instance, the administrative and support service activities sector had a -13.0% decrease, the wholesale and retail trade experienced a -9.0% decrease and the construction sector a -7.1% decrease in FTE in 2020. Nevertheless, with the availability of new data for the year 2021, it is evident that these heavily impacted sectors have recovered rapidly. The same sectors compose the top four increases in FTE in 2021. However, the rebound observed in 2021 does not fully offset the negative growth these sectors faced in 2020. In comparison with the pre-pandemic year 2019, they remain the most affected sectors regarding FTE levels.

4. Young and small companies were more adversely affected than their older and more established counterparts in 2020. However, these companies saw higher recovery growth in 2021 compared to older and larger firms.

5. Regionally, Wallonia saw the largest decline in FTE employment, followed by Flanders and then Brussels. In the public sector, The shock was felt least in Brussels, which even experienced a slight increase of 0.5%. However, in the private sector, FTE employment fell more sharply in Brussels than in Flanders, with Wallonia experiencing the greatest decrease. Trends across the various private sectors were generally quite similar across all three regions.

6. The growth decomposition analysis reveals that the four sectors with the largest contributions to Belgium’s decline in FTE were administrative and support service activities, wholesale and retail trade, accommodation and food service activities, and manufacturing. Collectively, these sectors accounted for 77.08% of the total FTE loss in 2020. In 2021, these sectors ranked 1st, 3rd, 8th, 4th in terms of FTE growth (recovery) and contributed to 54.89% of the total FTE growth for that year. Notably, the accommodation and food service activities sector contributed only 4.93% to this growth.

7. The event study analysis mostly supports the findings from the descriptive statistics. The growth of firms returned to fully normal levels in 2022. Firms that are younger and smaller experienced greater losses during the Covid-19 pandemic. However, after the pandemic, younger firms outperformed older firms and the disparity among the size groups decreased by the fourth quarter of 2021. On average, firms located in Brussels lagged behind in FTE compared to their counterparts in Flanders and Wallonia until the end of the fourth quarter of 2022, but results should be carefully interpreted because of large fluctuations in growth differences already before the pandemic.

State of the Art Review Paper

HAIOPOLICY

The impact of COVID-19 and other complex shocks on heterogeneous

households and businesses, and implied optimal policies

by Glenn Magerman, Bart Capéau, Hierro Castro, and Astrid Volckaert

February 2024

Our project aims to provide a detailed examination of the multifaceted impacts of COVID-19 on vulnerable groups in Belgium. Our objective is to identify strategies to shield these groups effectively and improve economic resilience against future shocks. The current paper synthesizes the latest academic and policy research findings pertinent to the BELSPO HAIOPOLICY project. Section 2 describes the consequences of COVID-19 on household outcomes, specifically examining shifts in labor markets, consumption habits, and saving patterns. In Section 3, we pivot to the pandemic's impact on businesses, analyzing firm survival, variations in output, employment trends, and productivity growth. Section 4 provides a review of the federal and regional interventions implemented to mitigate the pandemic's adverse effects. It discusses the budgetary environment of these policies, the main policies on both the employment and firm sides, as well as supra-national global value chain policies. Section 5 provides an overview of the state-of-the-art toolbox of modeling frameworks to quantify the impact of COVID-19 on both the production and consumption sides of the economy. Existing frameworks that model micro-to-macro outcomes mostly rely on either production or consumption heterogeneity. We will build on these frameworks to allow for detailed heterogeneity along regional, socio-economic and firm outcomes, while allowing for spillovers from production to consumption and vice versa through input-output linkages. Section 6 initiates a forward-looking discussion on formulating optimal policy responses to large shocks like COVID-19. This dialogue considers the many interlinked dimensions of heterogeneity, the policy toolbox, and how to start developing a multidimensional approach to policy development. By leveraging unprecedented access to granular data on production and consumption patterns, developing new quantitative frameworks to study the impact of large shocks and potential policies, and building on critical insights from a broad spectrum of stakeholders, this project aims to outline strategies that can guide policymakers in constructing interventions that are as inclusive as they are effective.

The Impact of Firm-level Covid Rescue Polices on Productivity Growth and Reallocation

by Glenn Magerman, Joep Konings, and Dieter Van Esbroeck

European Economic Review (2023), vol.157, article 104508

We evaluate the impact of Covid-19 rescue policies on both firm-level and aggregate productivity growth, exit, and creative destruction. Using administrative data on the universe of firms’ support mechanisms in Flanders over 2019–2021, we first estimate the causal impact of this support program on firm-level outcomes. Firms that received support saw a 4%–5% increase in productivity, compared to similar firms that applied for, but did not obtain support. The productivity premium effect is temporary however: by the last quarter of 2021, treated firms are indistinguishable from untreated firms. Support measures also drastically reduced firm failure. The propensity to exit the market was 45% lower for treated firms, and if no support would have been issued, aggregate firm exit would have increased by 9%. We decompose aggregate productivity growth, a share-weighted average of firms’ productivity growth rates, into several components. Within firms over time, both treated and untreated firms contribute positively to aggregate productivity growth. There are signs of insufficient creative destruction on both the extensive margin (firm entry and exit) and intensive margin (reallocation of market shares to more productive firms) during the crisis. However, insufficient reallocation was already present well before the crisis, and there is no evidence that this inefficiency is driven by the contribution of treated firms in particular. Firm-level support measures helped firms to avoid exit, and to temporarily increase productivity, while not altering the ongoing process of creative destruction in the aggregate.

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