The Consequences of Short-Time Compensation: Evidence from Japan

Takao Kato and Naomi Kodama

No 12596, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: There is a growing body of evidence on the efficacy of Short-Time Compensation (STC), a subsidy to promote worksharing in a recession, in achieving its intended goal of curtailing layoffs and preventing a sharp rise in unemployment. However, very little is known about the consequences of STC for firm performance. We apply the Propensity Score Matching (PSM) with difference-in-differences methodology to unique data from Japan, a country known for its extensive use, and find that STC results in improved profitability. The improved profitability is further found to be achieved through sales growth without raising labor costs. We explore possible mechanisms behind the observed positive consequences of STC for sales and profits. Additional evidence tends to favor what the psychology literature calls "shared adversity"- worksharing promoted by STC facilitates supportive interactions among workers in the firm and strengthens commitment of workers to the firm, and thereby enhances goal alignment between workers and the firm as well as between coworkers. Such workers are more open to the firm's effort to increase sales/revenues without raising cost.

Keywords: short-time work; short-time compensation; worksharing; employment adjustment; firm performance (search for similar items in EconPapers)
JEL-codes: H25 J23 J65 J68 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019-09
New Economics Papers: this item is included in nep-bec, nep-hrm, nep-lab and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: The Consequences of Short-Time Compensation: Evidence from Japan (2019)
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