The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States

Shekhar Aiyar and Mai Dao

No 2021/242, IMF Working Papers from International Monetary Fund

Abstract: Kurzarbeit (KA), Germany’s short-time work program, is widely credited with saving jobs and supporting domestic demand during the COVID-19 recession. We quantify the impact by exploiting state-level variation in exposure to the pandemic shock and KA take-up. We construct a shift-share measure of the labor demand shock and instrument KA take-up using the pre-existing, state-specific share of workers eligible for KA. We find, first, that KA was crucial in mitigating unemployment: absent its expansion the unemployment rate would have increased by an additional 3 pp on average at the trough of the recession. Second, KA also bolstered domestic demand: the contraction in consumption could have been 2 to 3 times larger absent the program. Finally, we provide preliminary evidence on the sensitivity of the medium-run reallocation of resources to the prevalence of jobretention schemes during the Global Financial Crisis.

Keywords: Kurzarbeit; Short-time work; Unemployment; Covid-19; KA take-up; job-retention scheme; labor demand shock; evidence from the German States; employment growth; Labor demand; Employment; Labor markets; COVID-19; Global (search for similar items in EconPapers)
Pages: 37
Date: 2021-10-01
New Economics Papers: this item is included in nep-eec and nep-hea
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Citations: View citations in EconPapers (8)

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