Working Paper: CEPR ID: DP16421
Authors: Giulia Giupponi; Camille Landais; Alice Lapeyre
Abstract: What is the most efficient way to respond to recessions in the labor market?To this question, policymakers on both sides of the pond gave two diametricallyopposed answers during the recent crisis. In the US, the focus was on insuringworkers, by aggressively increasing the generosity of unemployment insurance(UI). In Europe, to the contrary, policies were concentrated on saving job matches,with the massive use of labor hoarding subsidies through short-time-work (STW)programs, on which so little is actually known. In this article, we try to understandwho got it right. Building on the vast literature on UI and on a recent stream ofpapers on STW, we first provide a framework to determine the relative welfareeffects of STW versus UI. We then show that UI offers more insurance value thanSTW, but tends to exhibit larger fiscal externalities, due to moral hazard. We finallyfocus on how STW and UI affect labor market equilibrium and how this interactswith inefficiencies in the labor market. We review recent evidence showing thatSTW can be an effective way to reduce socially costly layoffs in recessions. Overall,we conclude that STW is an important and useful addition to the labor marketpolicy-toolkit during recessions, with strong and positive complementarities withUI.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment insurance (UI) (J65) | higher unemployment rates (J64) |
| short-time work (STW) (J22) | nonemployment rate (J64) |
| short-time work (STW) (J22) | socially costly layoffs (J63) |
| unemployment insurance (UI) (J65) | moral hazard costs (G52) |
| short-time work (STW) usage (J63) | job-filling probabilities (J68) |
| short-time work (STW) usage (J63) | unemployment insurance (UI) effectiveness (J65) |