Working Less, Working All. But with Care!

The Great Recession triggered a renewed interest among researchers and policymakers for short-time work schemes. Germany, in particular, making a particularly large use of short-time work during that recession and simultaneously experiencing a decline of its unemployment rate despite the dramatic output fall, raised a lot of interest on the effects of short-time work on job losses avoidance. Tito Boeri (Department of Economics, Bocconi, and Fondazione Rodolfo Debenetti) and Herbert Bruecker (University of Bamberg and IAB) provided an evaluation of these effects in their recent paper entitled Short-Time Work Benefits Revisited: Some Lessons from the Great Recession (Economic Policy, Oct. 2011, DOI: 10.1111/j.1468-0327.2011.271.x). Their results suggest that short-time work can be particularly effective under bad recessions, like the Great Recession. However, specific design features of those schemes are particularly important in relationship with other labour market institutions.

First, the authors document the considerable cross-country diversity of short-time work schemes along several dimensions such as eligibility criteria, entitlement conditions and costs to employers. They argue that these design features, together with relevant labour market institutions such as employment protection legislation and the degree of centralization of collective bargaining, affect the demand for short-time work. These results suggest therefore that the institutional structure of the labor market must be taken into consideration when debating on the desirability of enhancing short-time work and that the multiple dimensions of short-time work schemes must be reckoned when designing these schemes.

The authors also scrutinize the cyclical properties of short-time work. Indeed, reducing working time might be costly for two reasons. First it induces an inefficient combination of hours and employees and, second, reduces long-term growth by obstructing reallocation of workers. For these reasons short-time work schemes should be designed to operate temporarily. A comparison between Germany and Italy is carried out, showing striking evidence that the German scheme is strongly counter-cyclical whereas the Italian one, notably the so-called Cassa Integrazione Straordinaria and the Cassa Integrazione in Deroga, seems acyclical.

Finally, the authors evaluate the role played by short-time work in saving jobs during the Great Recession by making use of an international macro panel as well as a German firm-level data. Both the micro and the macro results point towards the effectiveness of this policy in reducing job losses. Interestingly, the macro results suggest that short-time work contributes to the avoidance of job losses only in the presence of severe recessions, a result which confirms the theoretical prediction that such a measure must be used only when firms are hit by temporary adverse shocks and not when facing structural difficulties. The micro analysis reveals that around 400 000 jobs were saved in Germany due to short-time work, a number which is close to the macro estimate for this country. However, the empirical evidence points to large deadweight losses, in the sense that the number of jobs saved is always smaller than the count of workers in the schemes.