Short-time work in the Great Recession: firm-level evidence from 20 EU countries

Thomas Y Mathä,Stephen Millard,Reamonn Lydon

doi:10.1186/s40173-019-0107-2

Abstract

Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment.

Highlights

Short-time work (STW) programmes are schemes aimed at preserving employment in firms temporarily experiencing weak demand
We find that firms with a higher proportion of long-tenured workers, and firm-specific human capital, are more likely to avail themselves of STW schemes: a ten percentage point increase in the share of workers with five or more years working in the firm increases the likelihood of STW take-up by 0.6–0.9 percentage points depending on the specification in question
We show that firms are more likely to take up STW in response to negative demand shocks

Summary

Introduction

Short-time work (STW) programmes are schemes aimed at preserving employment in firms temporarily experiencing weak demand. Two cross-country studies, by Hijzen and Venn (2011) and Boeri and Bruecker (2011) use aggregate data to analyse the net benefits associated with STW schemes. With the WDN data, we can test whether firms with high levels of firm-specific human capital or firms operating in a country-sector with high hiring and firing costs are more or less likely to use STW. Conscious of the fact that in a firm-level cross-country dataset, country fixed effects could pick up some of the institutional factors we want to examine To get around this we draw on the information in the survey papers by Arpaia et al (2010), Hijzen and Venn (2011) (updated by Hijzen and Martin (2013)) and Boeri and Bruecker (2011) to create a taxonomy of schemes (Table 2). One advantage of the firm level data is that we can control for worker tenure in the firm, a factor that tends to be correlated with firing costs when redundancy payments are linked to tenure

Empirical framework and results

Institutional factors

Findings

Conclusions