The Employment and Output Effects of Short-Time Work in Germany

Russell Cooper, Moritz Meyer, Immo Schott

NBER Working Paper No. 23688
Issued in August 2017
NBER Program(s):Economic Fluctuations and Growth

We study the employment and output effects of the short-time work (STW) policy in Germany between 2009 and 2010. This intervention facilitated reductions in hours worked per employee with the goal of preventing layoffs. Using confidential German micro-level data we estimate a search model with heterogeneous multi-worker firms as a basis for policy analysis. Our findings suggest that STW can prevent increases in unemployment during a recession. However, the policy leads to a decrease in the allocative efficiency of the labor market, resulting in significant output losses. These effects arise from a reduction in the vacancy filling rate resulting from the policy intervention.

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Document Object Identifier (DOI): 10.3386/w23688

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