On the efficiency of labor markets with short-time work policies

Juho Peltonen ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper evaluates the social optimality of labor markets with search frictions and a job retention policy, named short-time work (STW), which has been applied in developed economies during the Covid-19 crisis. In a general equilibrium model, costs related to the STW cannot be internalized in wages, creating a systematic inefficiency through which job creation is too low. Government transfers to redistribute output to correct the inefficiency are proposed in the model. Furthermore, a calibration exercise matching the German economy over the period 2000-2021 suggests that transfers required for the social optimality are 1.9% of output. In addition, the unemployment rate is 1.8 percentage points lower in the presence of optimal transfers.

Keywords: Search and matching; Short-time work policies; Constraint efficiency; Endogenous separations (search for similar items in EconPapers)
JEL-codes: E24 J64 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-dge and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119165

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