Working Paper: CEPR ID: DP13310
Authors: Camille Landais; Giulia Giupponi
Abstract: Short time work (STW) policies provide subsidies for hour reductions to work- ers in firms experiencing temporary shocks. They are the main policy tool used to support labor hoarding during downturns, and have been used aggressively since the start of the COVID-19 pandemic. Yet, very little is known about their employment and welfare consequences. This paper leverages unique administrative social security data from Italy during the Great Recession and quasi-experimental variation in STW policy rules to offer evidence of the effects of STW on firms’ and workers’ outcomes. Our results show large and significant negative effects of STW treatment on hours, but large and positive effects on headcount employment. We then analyze whether these positive employment effects are welfare enhancing, distinguishing between temporary and more persistent shocks. We first provide evidence that liquidity constraints and bargaining frictions make labor hoarding inefficiently low absent STW. Then, we show that adverse selection of low productivity firms into STW creates significant negative reallocation effects when the shock is persistent.
Keywords: short time work; employment; reallocation; social insurance
JEL Codes: H20; J20; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| STW (Y20) | hours worked per employee (J22) |
| STW (Y20) | headcount employment (J23) |
| STW (Y20) | outflow rates from firms (D22) |
| STW (Y20) | firms' survival probabilities (D25) |
| STW (Y20) | negative reallocation effects (H23) |
| low productivity firms (D22) | significant long-term benefits from STW (J32) |
| higher pre-crisis productivity firms (D22) | positive employment effects of STW (J68) |
| less productive firms (D22) | take up STW (Y20) |