IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v84y2016icp99-122.html
   My bibliography  Save this article

Does short-time work save jobs? A business cycle analysis

Author

Listed:
  • Balleer, Almut
  • Gehrke, Britta
  • Lechthaler, Wolfgang
  • Merkl, Christian

Abstract

In the Great Recession most OECD countries used short-time work (publicly subsidized working time reductions) to counteract a steep increase in unemployment. We show that short-time work can actually save jobs. However, there is an important distinction to be made: while the rule-based component of short-time work is a cost-efficient job saver, the discretionary component is completely ineffective. In a case study for Germany, we use the rich data available to combine micro- and macroeconomic evidence with macroeconomic modeling in order to identify, quantify and interpret these two components of short-time work.

Suggested Citation

  • Balleer, Almut & Gehrke, Britta & Lechthaler, Wolfgang & Merkl, Christian, 2016. "Does short-time work save jobs? A business cycle analysis," European Economic Review, Elsevier, vol. 84(C), pages 99-122.
    • Handle: RePEc:eee:eecrev:v:84:y:2016:i:c:p:99-122
    DOI: 10.1016/j.euroecorev.2015.05.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292115000720
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jens Boysen-Hogrefe & Dominik Groll, 2010. "The German Labour Market Miracle," National Institute Economic Review, National Institute of Economic and Social Research, vol. 214(1), pages 38-50, October.
    2. Jan Veld & Martin Larch & Marieke Vandeweyer, 2013. "Automatic Fiscal Stabilisers: What They Are and What They Do," Open Economies Review, Springer, vol. 24(1), pages 147-163, February.
    3. Tito Boeri & Herbert Bruecker, 2011. "Short‐time work benefits revisited: some lessons from the Great Recession," Economic Policy, CEPR;CES;MSH, vol. 26(68), pages 697-765, October.
    4. Karl BRENKE & Ulf RINNE & Klaus F. ZIMMERMANN, 2013. "Short-time work: The German answer to the Great Recession," International Labour Review, International Labour Organization, vol. 152(2), pages 287-305, June.
    5. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    6. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    7. Markus Brückner & Evi Pappa, 2012. "Fiscal Expansions, Unemployment, And Labor Force Participation: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1205-1228, November.
    8. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 968-983, May.
    9. Giuseppe Bertola, 2004. "A Pure Theory of Job Security and Labour Income Risk," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 43-61.
    10. Krause, Michael U. & Uhlig, Harald, 2012. "Transitions in the German labor market: Structure and crisis," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 64-79.
    11. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 273-335.
    12. Cahuc, Pierre & Carcillo, Stéphane, 2011. "Is Short-Time Work a Good Method to Keep Unemployment Down?," IZA Discussion Papers 5430, Institute for the Study of Labor (IZA).
    13. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    14. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-1496, December.
    15. Van Audenrode, Marc A, 1994. "Short-Time Compensation: Job Security, and Employment Contracts: Evidence from Selected OECD Countries," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 76-102, February.
    16. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    17. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
    18. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
    19. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    20. Christoffel, Kai & Kuester, Keith & Linzert, Tobias, 2009. "The role of labor markets for euro area monetary policy," European Economic Review, Elsevier, vol. 53(8), pages 908-936, November.
    21. Calavrezo, Oana & Duhautois, Richard & Walkowiak, Emmanuelle, 2010. "Short-Time Compensation and Establishment Exit: An Empirical Analysis with French Data," IZA Discussion Papers 4989, Institute for the Study of Labor (IZA).
    22. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
    23. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    24. Braun, Helge & Brügemann, Björn, 2014. "Welfare Effects of Short-Time Compensation," IZA Discussion Papers 8597, Institute for the Study of Labor (IZA).
    25. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    26. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    27. Faia, Ester & Lechthaler, Wolfgang & Merkl, Christian, 2013. "Fiscal stimulus and labor market policies in Europe," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 483-499.
    28. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, March.
    29. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
    30. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    31. repec:oup:restud:v:84:y:2017:i:3:p:1015-1040. is not listed on IDEAS
    32. Shigeru Fujita & Garey Ramey, 2009. "The Cyclicality Of Separation And Job Finding Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 415-430, May.
    33. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
    34. Dario Caldara & Christophe Kamps, 2017. "The Analytics of SVARs: A Unified Framework to Measure Fiscal Multipliers," Review of Economic Studies, Oxford University Press, vol. 84(3), pages 1015-1040.
    35. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Working Paper Series 923, European Central Bank.
    36. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    37. Fabrizio Mattesini & Lorenza Rossi, 2012. "Monetary Policy and Automatic Stabilizers: The Role of Progressive Taxation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 825-862, August.
    38. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
    39. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    40. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 865-887, July.
    41. repec:ilo:ilowps:457637 is not listed on IDEAS
    42. Christopher Phillip Reicher, 2012. "A simple decomposition of the variance of output growth across countries," Applied Economics Letters, Taylor & Francis Journals, vol. 19(9), pages 869-872, June.
    43. Ljungqvist, Lars & Sargent, Thomas J., 2007. "Understanding European unemployment with matching and search-island models," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2139-2179, November.
    44. Crimmann, Andreas. & Wieβner, Frank. & Bellmann, Lutz., 2010. "The German work-sharing scheme : an instrument for the crisis," ILO Working Papers 994576373402676, International Labour Organization.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Short-time work; Fiscal policy; Business cycles; Search and matching; SVAR;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:84:y:2016:i:c:p:99-122. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eer .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.