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Counteracting Unemployment in Crises: Non-Linear Effects of Short-Time Work Policy

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  • Gehrke, Britta

    () (University of Erlangen-Nuremberg)

  • Hochmuth, Brigitte

    () (University of Erlangen-Nuremberg)

Abstract

Short-time work is a labor market policy that subsidizes working time reductions among firms in financial difficulty to prevent layoffs. Many OECD countries have used this policy in the Great Recession. This paper shows that the effects of short-time work are strongly time dependent and non-linear over the business cycle. It may save up to 0.8 jobs per short-time worker in deep economic crises. The policy becomes more efficient as the recession deepens. In expansions, the effects are smaller and may turn negative. We disentangle discretionary short-time work from automatic stabilization in German data using smooth transition VARs.

Suggested Citation

  • Gehrke, Britta & Hochmuth, Brigitte, 2018. "Counteracting Unemployment in Crises: Non-Linear Effects of Short-Time Work Policy," IZA Discussion Papers 11472, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11472
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    References listed on IDEAS

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    Keywords

    short-time work; fiscal policy; labor market; non-linearity; smooth transition VARs; business cycle;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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

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