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The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States

Author

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  • Mr. Shekhar Aiyar
  • Mai Dao

Abstract

Kurzarbeit (KA), Germany’s short-time work program, is widely credited with saving jobs and supporting domestic demand during the COVID-19 recession. We quantify the impact by exploiting state-level variation in exposure to the pandemic shock and KA take-up. We construct a shift-share measure of the labor demand shock and instrument KA take-up using the pre-existing, state-specific share of workers eligible for KA. We find, first, that KA was crucial in mitigating unemployment: absent its expansion the unemployment rate would have increased by an additional 3 pp on average at the trough of the recession. Second, KA also bolstered domestic demand: the contraction in consumption could have been 2 to 3 times larger absent the program. Finally, we provide preliminary evidence on the sensitivity of the medium-run reallocation of resources to the prevalence of jobretention schemes during the Global Financial Crisis.

Suggested Citation

  • Mr. Shekhar Aiyar & Mai Dao, 2021. "The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States," IMF Working Papers 2021/242, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/242
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    Citations

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    Cited by:

    1. Peltonen, Juho, 2023. "On the efficiency of labor markets with short-time work policies," MPRA Paper 119165, University Library of Munich, Germany.
    2. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2023. "Did Job Retention Schemes Save Jobs during the Covid-19 Pandemic? Firm-level Evidence from Latvia," Working Papers 2023/03, Latvijas Banka.
    3. Peltonen, Juho, 2023. "Short-time work in search and matching models: Evidence from Germany during the Covid-19 crisis," MPRA Paper 119238, University Library of Munich, Germany.
    4. Garnadt, Niklas & von Rueden, Christina & Thiel, Esther, 2021. "Labour reallocation dynamics in Germany during the COVID-19 pandemic and past recessions," Working Papers 08/2021, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.

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