Subsidizing Labor Hoarding in Recessions: The Employment & Welfare Effects of Short Time Work

By G. Giupponi, Camille Landais. The Review of Economic Studies, 2018

128 citations recorded by the source corpus.

Short time work (STW) policies provide subsidies for hour reductions to workers in firms experiencing temporary shocks. They are the main policy tool used to support labor hoarding during downturns, and were aggressively used during 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 and quasi-experimental variation in STW policy rules to offer evidence on the effects of STW on firms’ and workers’ outcomes during the Great Recession. 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 rigidities in wages and hours may make labor hoarding inefficiently low without STW. Then, we show that adverse selection of low productivity firms into STW reduces the long-run insurance value of the program and creates significant negative reallocation effects when the shock is persistent.

Subfields: Demography, Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/6753502bc9a8ca134a85a25b5b395c40c85d61f0

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Teodora Boneva

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Citations in the corpus

Social protection response to the COVID-19 crisis: options for developing countries (2020, background): “Their advantage in the current crisis is to avoid the destruction of existing jobs (Giupponi and Landais, 2018), which should be viable again once the public health response is relaxed.”
Inequality in the impact of the coronavirus shock: Evidence from real time surveys (2020, background): “…of economic downturns on labor market outcomes (e.g., Hoynes, Miller and Schalle 2012; Christiano, Eichenbaum and Trabandt 2015) and the importance of short-time work schemes to buffer economic shocks (e.g., Giupponi and Landais 2018; Cahuc, Kramarz and Nevoux 2018; Kopp and Siegenthaler 2018).”