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Counteracting Unemployment in Crises: Non‐Linear Effects of Short‐Time Work Policy

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  • Britta Gehrke
  • Brigitte Hochmuth

Abstract

Short‐time work (STW) is a labor‐market policy that subsidizes working‐time reductions among firms in financial difficulty to prevent lay‐offs. Many OECD countries have used this policy in the Great Recession. In this paper, we show that the effects of STW are strongly time‐dependent and non‐linear over the business cycle. Discretionary STW policy might save up to 0.87 jobs per short‐time worker in deep economic crises. In expansions, the effects are smaller and might turn negative. We disentangle discretionary STW from automatic stabilization in German data using smooth‐transition vector autoregressions.

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  • Britta Gehrke & Brigitte Hochmuth, 2021. "Counteracting Unemployment in Crises: Non‐Linear Effects of Short‐Time Work Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 144-183, January.
  • Handle: RePEc:bla:scandj:v:123:y:2021:i:1:p:144-183
    DOI: 10.1111/sjoe.12395
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    Cited by:

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    3. Herzog-Stein, Alexander & Nüß, Patrick & Peede, Lennert & Stein, Ulrike, 2022. "Germany and the United States in coronavirus distress: internal versus external labour market flexibility," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 56, pages 1-11.
    4. J. Garcia-Clemente & N. Rubino & E. Congregado, 2023. "Reemployment premium effect of furlough programs: evaluating Spain’s scheme during the COVID-19 crisis," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 57(1), pages 1-15, December.
    5. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2024. "Understanding How Job Retention Schemes Reshape the Within-Occupation Skill Profile of Employees within Firms," Working Papers 2024/02, Latvijas Banka.
    6. Dengler, Thomas & Gehrke, Britta, 2021. "Short-Time Work and Precautionary Savings," IZA Discussion Papers 14329, Institute of Labor Economics (IZA).
    7. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2023. "Did Job Retention Schemes Save Jobs during the Covid-19 Pandemic? Firm-level Evidence from Latvia," Working Papers 2023/03, Latvijas Banka.
    8. Hellwagner, Timon & Weber, Enzo, 2021. "Labour Market Adjustments to Population Decline," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242455, Verein für Socialpolitik / German Economic Association.
    9. Elroukh, Ahmed W. & Nikolsko-Rzhevskyy, Alex & Panovska, Irina, 2020. "A look at jobless recoveries in G7 countries," Journal of Macroeconomics, Elsevier, vol. 64(C).
    10. Garcia-Clemente, Javier & Rubino, Nicola & Congregado, Emilio, 2022. "Evaluating the effects of short and medium-term temporary work reduction schemes: the case of Spain’s ERTEs during the COVID-19 outbreak," MPRA Paper 114504, University Library of Munich, Germany.
    11. García-Cabo, Joaquín & Lipińska, Anna & Navarro, Gastón, 2023. "Sectoral shocks, reallocation, and labor market policies," European Economic Review, Elsevier, vol. 156(C).
    12. Alexander Herzog-Stein & Patrick Nuess & Lennert Peede & Ulrike Stein, 2021. "Germanys Labour Market in Coronavirus Distress New Challenges to Safeguarding Employment," IMK Working Paper 209-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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