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The Impact of Short-Time Work during the Great Recession

Author

Listed:
  • Natalia Bermudez-Barrezueta

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Bart Cockx

    (Department of Economics, Ghent University, Belgium. IRES/LIDAM, UCLouvain, Belgium. IZA, Bonn, Germany. CESifo, Munich, Germany. ROA, Maastricht University)

  • Gert Bijnens

    (Economics and Research Department, National Bank of Belgium)

Abstract

We evaluate the effectiveness of Belgium’s short-time work (STW) program during the Great Recession, a period when the country recorded the highest STW take-up rate in Europe. STW allows firms to reduce working hours in response to temporary shocks while avoiding layoffs, playing a key role in European labor market insurance systems. Using an instrumental variable strategy that exploits quasi-exogenous variation stemming from an institutional feature of the Belgian program, we estimate the causal effects of STW on employment and wages. We find that, while STW significantly reduces the volume of work per worker, it does not lead to statistically significant employment gains for the average treated firm. Importantly, positive employment effects are concentrated among small manufacturing firms, which are more likely to face binding liquidity constraints. These findings highlight the importance of targeting and screening in improving the cost-effectiveness of STW programs and minimizing deadweight losses.

Suggested Citation

  • Natalia Bermudez-Barrezueta & Bart Cockx & Gert Bijnens, 2025. "The Impact of Short-Time Work during the Great Recession," LIDAM Discussion Papers IRES 2025014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2025014
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    Keywords

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    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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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