The Role of Short-Time Work Schemes during the 2008-09 Recession

Abstract

The present paper provides the most comprehensive assessment to date of the impact of short-time work (STW) schemes during the 2008-09 crisis. The analysis covers 19 OECD countries, 11 of which operated a short-time work scheme before the crisis, five countries introduced a new scheme during the crisis period and three countries never had a short-time work scheme. In order to identify the causal effects of short-time work, a difference-in-differences approach is adopted that exploits the variation in labour-adjustment patterns and the intensity with which STW schemes are used across countries and time. The estimates support the conclusion that STW schemes had an economically important impact on preserving jobs during the economic downturn, with the largest impacts of STW on employment in Germany and Japan among the 16 countries considered. However, the positive impact of STW was limited to workers with permanent contracts, thereby further increasing labour market segmentation between workers in regular jobs and workers in temporary and part-time jobs. The estimated jobs impact is smaller than the potential number of jobs saved as implied by the full-time equivalent number of participants in short-time work, suggesting that STW schemes end up supporting some jobs that would have been maintained in the absence of the subsidy. However, the estimated deadweight is less than that usually estimated for other job subsidy measures. As the OECD area is only just starting to emerge from the crisis, it is still too early to assess the impact of STW schemes in the longer term. Indeed, the main concerns about STW schemes relate to their potentially adverse impacts on the vigour of employment growth during the recovery and economic restructuring in the longer run.