When Short-Time Work Works

Abstract

Short-time work programs were revived by the Great Recession. To understand their operating mechanisms, we …rst provide a model showing that short-time work may save jobs in …rms hit by strong negative revenue shocks, but not in less severely-hit …rms, where hours worked are reduced, without saving jobs. The cost of saving jobs is low because short-time work targets those at risk of being destroyed. Using extremely detailed data on the administration of the program covering the universe of French establishments, we devise a causal identi…cation strategy based on the geography of the program that demonstrates that short-time work saved jobs in …rms faced with large drops in their revenues during the Great Recession, in particular when highly levered, but only in these …rms. The measured cost per saved job is shown to be very low relative to that of other employment policies.

Heterogeneous Layoff Effects of the US Short‐Time Compensation Program

“…Allowing for this heterogeneity, as supported by a model specification test, indicates the cyclically unstable (and not the typical) STC firm benefits from about a 14% reduction in its layoff rate—a finding consistent with Cahuc et al . (2018) for French firms. Moreover, the STC program has the greatest effect on layoff rates among cyclically unstable firms that receive a pure subsidy and potentially face significant human capital losses from layoffs.…”

“…For instance, cyclically sensitive less stable firms, with revenues that are so sensitive to demand conditions that they have unstable employment and habitually rely on laying off workers or reducing work hours when demand is low, may benefit more than the typical firm. For these firms, we expect the impact of STC to depend on the extent to which firms are prone to cyclical instability because less stable firms are more exposed to excessive layoffs and hence may be more dependent on STC to help finance labor hoarding during a negative shock (Cahuc et al ., 2018).…”

“…(2009, 2010) use IV/inverse Mills ratio techniques and propensity score matching and find that an STC policy increases the incidence and the extent of layoffs in France. However, Cahuc et al .’s (2018) IV method yields a positive effect of the policy on permanent employment and survival of highly levered French firms. For German plants, Boeri and Bruecker (2011) employ an IV method to show that a greater share of STC workers has a positive impact on employment growth during 2008–2009, but Bellman et al .…”

“…Instead to identify STC's causal effect, Cahuc et al . (2018) exploit geographical differences in labor relations based on administrative agencies' response times to firms' STC applications. However, whereas longer response times might lower STC use, one can challenge this identification strategy if locations with sluggish administrative agencies are intrinsically different politically in their labor relations ideology, which makes it easier for firms to layoff than to work with their local agencies.…”

Short-Time Compensation: An Alternative to Layoffs during COVID-19

“…The Benefits and Costs of STC Microeconomic studies suggest that STC saves jobs, and macroeconomic studies using cross-country data typically find a positive effect of STC on aggregate employment (Boeri and Bruecker, 2011; Cahuc and Carcillo, 2011;Hijzen and Martin, 2013). Using microeconomic data, Cahuc, Kramarz, and Nevoux (2018) find that STC prevents inefficient job destruction and firm failure among firms that face large temporary declines in revenue and that have limited access to credit. Moreover, STC is a less costly way of saving jobs than wage or hiring subsidies because STC targets the most vulnerable jobs.…”