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Welfare Effects of Short-Time Compensation

Listed author(s):
  • Helge Braun

    ()

    (Ruhr Graduate School in Economics, Germany)

  • Björn Brügemann

    ()

    (VU Amsterdam, The Netherlands)

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.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 17-010/VI.

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Date of creation: 16 Jan 2017
Handle: RePEc:tin:wpaper:20170010
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