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

Britta Gehrke () and Brigitte Hochmuth

No 11472, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Short-time work is a labor market policy that subsidizes working time reductions among firms in financial difficulty to prevent layoffs. Many OECD countries have used this policy in the Great Recession. This paper shows that the effects of short-time work are strongly time dependent and non-linear over the business cycle. It may save up to 0.8 jobs per short-time worker in deep economic crises. The policy becomes more efficient as the recession deepens. In expansions, the effects are smaller and may turn negative. We disentangle discretionary short-time work from automatic stabilization in German data using smooth transition VARs.

Keywords: short-time work; fiscal policy; labor market; non-linearity; smooth transition VARs; business cycle (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur, nep-lab and nep-mac
Date: 2018-04
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Working Paper: Counteracting unemployment in crises: non-linear effects of short-time work policy (2017) Downloads
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