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Welfare Effects of Short-Time Compensation

Author

Listed:
  • Helge Braun

    () (Ruhr Graduate School in Economics, Germany)

  • Björn Brügemann

    () (VU Amsterdam, The Netherlands)

Abstract

We study welfare effects of public short-time compensation (STC) in a model in which firms respond to idiosyncratic profitability shocks by adjusting employment and hours per worker. Introducing STC substantially improves welfare by mitigating distortions caused by public unemployment insurance (UI), but only if firms have access to private insurance. Otherwise firms respond to low profitability by combining layoffs with long hours for remaining workers, rather than by taking up STC. Optimal STC is substantially less generous than UI even when firms have access to private insurance, and equally generous STC is worse than not offering STC at all.

Suggested Citation

  • Helge Braun & Björn Brügemann, 2017. "Welfare Effects of Short-Time Compensation," Tinbergen Institute Discussion Papers 17-010/VI, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20170010
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. repec:oup:oxecpp:v:70:y:2018:i:1:p:183-205. is not listed on IDEAS
    3. Daniel Borowczyk-Martins & Etienne Lalé, 2018. "The welfare effects of involuntary part-time work," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 183-205.
    4. Gehrke, Britta & Hochmuth, Brigitte, 2017. "Counteracting unemployment in crises : non-linear effects of short-time work policy," IAB Discussion Paper 201727, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

    Short-Time Compensation; Unemployment Insurance; Welfare;

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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