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

Britta Gehrke and Brigitte Hochmuth

Scandinavian Journal of Economics, 2021, vol. 123, issue 1, 144-183

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.

Date: 2021
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https://doi.org/10.1111/sjoe.12395

Related works:
Working Paper: Counteracting Unemployment in Crises: Non-Linear Effects of Short-Time Work Policy (2018)
Working Paper: Counteracting unemployment in crises: non-linear effects of short-time work policy (2017)
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