Short-time work benefits revisited: some lessons from the Great Recession

The Great Recession triggered a resurgence of short-time work (STW) throughout the OECD. Several countries introduced STW from scratch or significantly expanded the scope of the programmes already in place. In some countries like Italy, Japan and Germany between 2.5% and 5% of the workforce participated in STW schemes at the trough of the recession.

In this paper we analyse the rationale for STW benefits and their effects on labour adjustment from both a cross-country and a time-series perspective. We find that STW actually contributed to reduce job losses during the Great Recession.

However, the number of jobs saved, according to our macroeconomic and microeconomic estimates, is smaller than the number of participants in these schemes and the full-time equivalent jobs involved, pointing in some countries to sizeable deadweight costs. Other institutions, like plant-level bargaining over hours, wages and employment levels, may be more effective than STW in encouraging adjustment along the intensive margins in the presence of temporary shocks.

Our results also suggest that STW cannot be readily extended to countries having much different institutional configurations as the demand for STW is very much affected by other institutions such as employment protection legislation and the degree of centralization of collective bargaining.

Furthermore, STW must be temporary as during upturns may actually negatively affect employment. We also find that specific design features of STW – such as experience-rating and disincentives to 100% reductions in working hours – are important in improving the cyclical properties of STW.