The impact of short-time work during the great recession

Gert Bijnens, Natalia Bermudez () and Bart Cockx ()
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Natalia Bermudez: IRES/LIDAM, Université Catholique de Louvain, and Department of Economics, Ghent University.
Bart Cockx: Department of Economics, Ghent University, Belgium. IRES/LIDAM, UCLouvain, Belgium. IZA, Bonn, Germany. CESifo, Munich, Germany. ROA, Maastricht University.

No 481, Working Paper Research from National Bank of Belgium

Abstract: We evaluate the effectiveness of Belgium’s short-time work (STW) program during the Great Recession, a period when the country recorded the highest STW take-up rate in Europe. STW allows firms to reduce working hours in response to temporary shocks while avoiding layoffs, playing a key role in European labor market insurance systems. Using an instrumental variable strategy that exploits quasi-exogenous variation stemming from an institutional feature of the Belgian program, we estimate the causal effects of STW on employment and wages. We find that, while STW significantly reduces the volume of work per worker, it does not lead to statistically significant employment gains for the average treated firm. Importantly, positive employment effects are concentrated among small manufacturing firms, which are more likely to face binding liquidity constraints. These findings highlight the importance of targeting and screening in improving the cost-effectiveness of STW programs and minimizing deadweight losses.

Keywords: Short-time work; employment; wages; unemployment insurance. (search for similar items in EconPapers)
JEL-codes: E24 J22 J23 J63 J65 (search for similar items in EconPapers)
Pages: 58 pages
New Economics Papers: this item is included in nep-eur and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202509-481

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