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Subsidizing Labor Hoarding in Recessions: The Employment & Welfare Effects of Short Time Work

Author

Listed:
  • Giulia Giupponi
  • Camille Landais

Abstract

The Great Recession has seen a revival of interest in policies encouraging labor hoarding by firms. Short time work (STW) policies, which consist in offering subsidies for hours reductions to workers in firms experiencing temporary shocks, are the most emblematic of these policies, and have been used aggressively during the recession. Yet, very little is known about their employment and welfare consequences. This paper leverages unique administrative social security data from Italy and quasi-experimental variation in STW policy rules to offer compelling evidence of the effects of STW on firms' and workers' outcomes, and on reallocation in the labor market. Our results show large and significant negative effects of STW treatment on hours, but large and positive effects on headcount employment. Results also show that employment effects disappear when the program stops, and that STW offers no long term insurance to workers. Finally, we identify the presence of significant negative reallocation effects of STW on employment growth of untreated firms in the same local labor market. We develop a simple conceptual framework to rationalize this empirical evidence, from which we derive a general formula for the optimal STW subsidy that clarifies the welfare trade-offs of STW policies. Calibrating the model to our empirical evidence, we conduct counterfactual policy analysis and show that STW stabilized employment during the Great Recession in Italy, and brought (small) positive welfare gains.

Suggested Citation

  • Giulia Giupponi & Camille Landais, 2018. "Subsidizing Labor Hoarding in Recessions: The Employment & Welfare Effects of Short Time Work," CEP Discussion Papers dp1585, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1585
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    References listed on IDEAS

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    1. Russell Cooper, 2017. "The Employment and Output Effects of Short-Time Work in Germany," 2017 Meeting Papers 613, Society for Economic Dynamics.
    2. Xavier Giroud & Holger M. Mueller, 2017. "Firm Leverage, Consumer Demand, and Employment Losses during the Great Recession," Working Papers 17-01, Center for Economic Studies, U.S. Census Bureau.
    3. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2018. "A Macroeconomic Approach to Optimal Unemployment Insurance: Theory," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 152-181, May.
    4. 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.
    5. Pierre Cahuc & Francis Kramarz & Sandra Nevoux, 2018. "When Short-Time Work Works," Working papers 692, Banque de France.
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    11. 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.
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    Cited by:

    1. Jäger, Simon & Schoefer, Benjamin & Zweimüller, Josef, 2019. "Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations," IZA Discussion Papers 12127, Institute of Labor Economics (IZA).
    2. Simon Jäger & Benjamin Schoefer & Josef Zweimüller, 2018. "Marginal jobs and job surplus: a test of the efficiency of separations," ECON - Working Papers 314, Department of Economics - University of Zurich.

    More about this item

    Keywords

    short-time work; employment; reallocation; social insurance; optimal policy;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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