The effectiveness of job retention schemes during economic crises

Job retention schemes played a key role in preserving job-matches during the global financial crisis and, to a larger degree, during the COVID-19 crisis, covering at some point 20% of all employees in the OECD during the latter. The generosity of the support seems to have played a key role in this. Empirical studies on the global financial crisis suggest that the schemes were quite effective in preserving matches, especially in the first year, but may have reduced productivity growth when used for a long time in some countries. Firm-level studies for the COVID-19 crisis suggest that short-time work schemes were more cost-effective in saving jobs than wage subsidy schemes, possibly because they tended to be better targeted in practice. However, it is important to note that firm level studies do not capture potentially important macro-effects of these schemes, e.g. via consumption. To be better prepared for future crises, this chapter suggests that countries prioritize an administrative system for job retention schemes that can be scaled up quickly and consider a system of experience rating for the co-financing by firms.