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The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States

Author

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  • Mr. Shekhar Aiyar
  • Mai Dao

Abstract

Kurzarbeit (KA), Germany’s short-time work program, is widely credited with saving jobs and supporting domestic demand during the COVID-19 recession. We quantify the impact by exploiting state-level variation in exposure to the pandemic shock and KA take-up. We construct a shift-share measure of the labor demand shock and instrument KA take-up using the pre-existing, state-specific share of workers eligible for KA. We find, first, that KA was crucial in mitigating unemployment: absent its expansion the unemployment rate would have increased by an additional 3 pp on average at the trough of the recession. Second, KA also bolstered domestic demand: the contraction in consumption could have been 2 to 3 times larger absent the program. Finally, we provide preliminary evidence on the sensitivity of the medium-run reallocation of resources to the prevalence of jobretention schemes during the Global Financial Crisis.

Suggested Citation

  • Mr. Shekhar Aiyar & Mai Dao, 2021. "The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States," IMF Working Papers 2021/242, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/242
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    Citations

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    Cited by:

    1. Camilo Gómez & Daniela Rodríguez-Novoa, 2024. "Firm Support Measures, Credit Payment Behavior, and Credit Risk," Borradores de Economia 1277, Banco de la Republica de Colombia.
    2. Peltonen, Juho, 2023. "On the efficiency of labor markets with short-time work policies," MPRA Paper 119165, University Library of Munich, Germany.
    3. 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.
    4. Peltonen, Juho, 2023. "Short-time work in search and matching models: Evidence from Germany during the Covid-19 crisis," MPRA Paper 119238, University Library of Munich, Germany.
    5. Garnadt, Niklas & von Rueden, Christina & Thiel, Esther, 2021. "Labour reallocation dynamics in Germany during the COVID-19 pandemic and past recessions," Working Papers 08/2021, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.

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