The Unassuming Economist

From a new VOX post:

“Short-time work schemes are a fiscal stabiliser in Europe. Between 2010 and 2013, they were used by 7% of firms, employing 9% of workers in the region. This column uses ECB data to show that firms use the schemes to offset negative shocks and retain high-productivity workers. High firing costs and wage rigidity increase the use of short-time work, which in turn reduces the fall in employment brought on by a recession.”

“STW clearly shelters individual workers or firms from the worst effects of recessions. The question of whether it has a significant aggregate impact is the focus of several country-specific papers (Balleer et al. 2016, for Germany, is one example).

To answer this question using the WDN3 data, we divide countries and sectors into those with high levels of STW take-up (in which more than 10% of firms use STW in the country-sector) and those with low levels (in which fewer than 1% of firms use STW). Using Eurostat data on employment and output per sector from 2008-13, we then estimate the response of employment to falls in output for high- and low-STW sectors.

Figure 5 shows the results in the form of the responses of employment to a 1% fall in output. The fall in employment is considerably lower for high-STW sectors, where it peaks at 0.12% after three to four quarters. In low-STW sectors, by contrast, the employment fall peaks at the much higher level of almost 0.40%,after just two quarters. This suggests that STW can have significant aggregate effects, smoothing changes in overall employment through the cycle.”