The solidarity contract as a European labour adjustment tool

April 27, 2026

Across Europe, labour markets have developed a set of shared but differently implemented instruments to manage downturns without immediate mass layoffs. Often grouped under the idea of “work sharing” or “solidarity contracts”, these mechanisms reduce working time across a workforce while compensating income losses through public funds and collective agreements. They sit at the intersection of industrial policy, social protection and crisis management.

Although terminology differs between countries, the logic is similar: distribute reduced demand across more workers, preserve skills inside firms and avoid unemployment spikes. The scale and design vary significantly, shaped by national welfare systems and industrial relations traditions.

Research by the OECD and Eurofound consistently identifies work sharing as one of the most effective short-time compensation tools for stabilising employment during recessions, particularly when implemented early in downturns (OECD Employment Outlook, 2024; Eurofound, 2021-2026).

Italy and the solidarity contract model

Italy’s contratti di solidarietà are among the most structured European versions of work sharing. They allow companies in crisis to reduce working time across employees while the state covers part of lost income through wage supplementation schemes linked to the Cassa Integrazione Guadagni.

A recent case involving Engineering Ingegneria Informatica illustrates how the system operates in practice. The restructuring concerns 658 workers initially affected by organisational changes linked to a declared crisis phase. Through internal redeployment, voluntary exits and reintegration measures, the affected perimeter is expected to fall to 472 employees.

The agreement reached with Fiom, Fim and Uilm introduces solidarity contracts covering up to eight working days per month per employee, based on rotation criteria. Workers most exposed to reduced hours receive a 75 percent wage integration, bringing total compensation up to around 95 percent of normal pay. Italy’s short-time work architecture typically combines state wage support with collective bargaining top-ups depending on sectoral agreements (Italian Ministry of Labour reports, 2021–2024).

At national level, Italy’s Cassa Integrazione system expanded sharply during Covid-19, supported by over €27 billion from the EU’s SURE instrument, which financed wage protection schemes across member states (European Commission, SURE reports 2021–2025).

Germany’s Kurzarbeit and large scale stabilisation

Germany’s Kurzarbeit is the most cited European work sharing model and often considered the benchmark for crisis response. During the Covid-19 pandemic it covered approximately 6 million workers at its peak in 2020.

Under the scheme employees typically receive around 60 percent of net lost wages, or 67 percent for those with children, with costs shared between employers and the federal employment agency. OECD estimates place total German spending on Kurzarbeit during 2020–2021 in the tens of billions of euros, with monthly expenditure exceeding €10 billion during peak lockdown periods (OECD Employment Outlook, 2024).

Think tank analysis from Bruegel and labour economics research institutes highlights that Kurzarbeit significantly reduced layoffs in manufacturing, particularly automotive and industrial supply chains, by maintaining firm-worker attachment during demand shocks (Bruegel, 2022-2025).

France and partial activity as a state-led buffer

France operates activité partielle, a system allowing firms to reduce working hours while employees receive state compensated income for non-worked hours.

During the Covid-19 crisis, more than 8 million workers were enrolled at the peak in April 2020 according to the French Ministry of Labour and confirmed in reporting by Le Monde and Les Échos. The state covered up to 70 percent of gross wages, with higher levels in selected sectors.

Total fiscal cost exceeded €30 billion in 2020 according to French government accounts and OECD assessments. The IMF similarly noted that the scheme played a decisive role in preventing a sharp rise in unemployment during the initial pandemic shock (IMF Country Report France, 2024).

Spain and evolving ERTE protections

Spain’s ERTE system (temporary employment regulation schemes) combines suspension and reduction of employment contracts. At its peak in April 2020 it covered around 3.4 million workers according to Spain’s Social Security administration (SEPE) and Ministry data.

Workers typically receive between 70 and 80 percent of their wage base depending on duration and conditions. The Bank of Spain estimated that ERTEs represented a fiscal commitment in the tens of billions of euros during the crisis period, with additional support from EU SURE financing (Bank of Spain, 2025; European Commission, 2024).

Reporting by Reuters and the Financial Times highlighted that ERTE usage was heavily concentrated in tourism dependent regions such as Catalonia, the Balearic Islands and Andalusia, where seasonal demand collapse required rapid labour adjustment mechanisms.

Nordic flexibility and negotiated reductions

Nordic countries rely less on formal statutory solidarity contracts and more on collective bargaining and flexible working time arrangements combined with strong unemployment insurance systems.

During the pandemic Sweden introduced temporary short-time work subsidies covering up to 90 percent of wage costs in some arrangements. Denmark implemented wage compensation schemes covering approximately 75 percent of salaries for furloughed workers in affected sectors.

Eurofound research emphasises that these systems depend on institutional trust, high union density and coordinated bargaining rather than strict legal frameworks, allowing rapid adaptation during economic shocks.

Structural tensions and long term questions

Despite their effectiveness, solidarity contracts and short-time work systems raise persistent structural tensions that European policymakers have not fully resolved.

The first is fiscal permanence. Instruments designed as temporary crisis buffers increasingly risk becoming semi-permanent components of labour market policy. OECD analysis warns that repeated activation of short-time work schemes can create long-term budgetary exposure, particularly if industries rely on them during repeated cycles of low demand rather than undergoing structural adjustment (OECD Employment Outlook, 2025).

The second tension is inequality of coverage. Eurofound and the European Trade Union Institute (ETUI) both note that these systems disproportionately benefit standard employees in large firms and regulated sectors. Workers in platform economies, temporary contracts or informal arrangements are often excluded or only partially covered, reinforcing segmentation in European labour markets (ETUI, 2024; Eurofound, 2023).

A third issue is moral hazard at firm level. Think tank analysis from Bruegel suggests that while short-time work stabilises employment, it can also delay necessary restructuring decisions, particularly in firms facing long-term productivity decline rather than cyclical shocks (Bruegel, 2021). This creates a policy dilemma between preserving employment and encouraging economic reallocation.

A fourth tension concerns productivity dynamics. IMF and OECD research indicates that extensive reliance on job retention schemes may slow labour reallocation from low productivity to high productivity sectors, particularly in economies undergoing digital transformation.

Finally there is the political economy dimension. The expansion of solidarity mechanisms during Covid-19 was supported by extraordinary EU financing through the SURE instrument, but its future permanence remains limited. The European Commission has described SURE as a temporary emergency tool, raising questions about what replaces it in future downturns.

Conclusion

The solidarity contract, whether in Italy, Germany, France or Spain, reflects a distinctly European compromise between flexibility and protection. While institutional forms differ, the underlying principle remains consistent: preserve jobs by sharing adjustment costs across workers, firms and the state.

What distinguishes the European model is not the existence of these tools but their scale, fiscal depth and institutionalisation. Yet the same features that make them effective in crises also generate long-term tensions around inequality, productivity and fiscal sustainability.

CPM