Should We Insure Workers or Jobs During Recessions?

Camille Landais, Giulia Giupponi and Alice Lapeyre

No 16421, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What is the most efficient way to respond to recessions in the labor market? To this question, policymakers on both sides of the pond gave two diametrically opposed answers during the recent crisis. In the US, the focus was on insuring workers, by aggressively increasing the generosity of unemployment insurance (UI). In Europe, to the contrary, policies were concentrated on saving job matches, with the massive use of labor hoarding subsidies through short-time-work (STW) programs, on which so little is actually known. In this article, we try to understand who got it right. Building on the vast literature on UI and on a recent stream of papers on STW, we first provide a framework to determine the relative welfare effects of STW versus UI. We then show that UI offers more insurance value than STW, but tends to exhibit larger fiscal externalities, due to moral hazard. We finally focus on how STW and UI affect labor market equilibrium and how this interacts with inefficiencies in the labor market. We review recent evidence showing that STW can be an effective way to reduce socially costly layoffs in recessions. Overall, we conclude that STW is an important and useful addition to the labor market policy-toolkit during recessions, with strong and positive complementarities with UI.

Date: 2021-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16421 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Should We Insure Workers or Jobs during Recessions? (2022)
Working Paper: Should we insure workers or jobs during recessions? (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:16421

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16421

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().