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Short-Time Work and Precautionary Savings

Thomas Dengler and Britta Gehrke

No 9873, CESifo Working Paper Series from CESifo

Abstract: In the Covid-19 crisis, most OECD countries have used short-time work (subsidized working time reductions) to preserve employment relationships. This paper studies whether short-time work can save jobs through stabilizing aggregate demand in recessions. First, we show that the consumption risk of short-time work is considerably smaller compared to unemployment using household survey data from Germany. Second, we build a New Keynesian model with incomplete asset markets and labor market frictions featuring an endogenous firing and short-time work decision. In recessions, short-time work reduces the unemployment risk of workers, which mitigates their precautionary savings motive. Using a quantitative model analysis, we show that this channel increases the stabilization potential of short-time work over the business cycle.

Keywords: short-time work; fiscal policy; incomplete asset markets; unemployment risk; matching frictions (search for similar items in EconPapers)
JEL-codes: E21 E24 E32 E52 E62 J63 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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