Short time working arrangements as response to cyclical fluctuations

After reviewing the theory of short-time working schemes, this paper reviews and discusses the main characteristics of short-time schemes available in the EU.

Empirical evidence shed lights on their importance to minimise wasteful labour shedding during the crisis. While too early to assess their long-term impact, the study highlights the risk that a prolonged use of short-time work supports the demand of declining sectors, eventually delaying their restructuring, especially when the costs of labour reallocation are low and the incentives to restructure high, because the opportunity costs of foregone output is lower in recessions than in booms.

By delaying reallocation, short-time work schemes hold back productivity growth and the consequent wage gains.