Heterogeneous Layoff Effects of the US Short‐Time Compensation Program

Abstract

The Short‐Time Compensation (STC) program enables US firms to reduce work hours via pro‐rated Unemployment Insurance (UI) benefits, rather than relying on layoffs as a cost‐cutting tool. Despite the program's potential to preclude skill loss and rehiring/retraining costs, firms' participation rates are still very low in response to economic downturns. Using firm‐level UI administrative data and semi‐parametric methods, we show why by illustrating which type of firms benefit from the program and which do not. A key finding is that cyclically sensitive firms have about 14% lower layoff rates when they use STC, but we find no difference for more cyclically stable firms.

Short-Time Work and Unemployment in and after the Great Recession

“…However, firms that use STW may be cyclically more sensitive than firms that do not. Consequently, employment may fluctuate more strongly in firms with STW experience than in firms without, invalidating the exclusion restriction(Cahuc, 2018;Tracey and Polachek, 2018).6 The Swiss scheme analyzed here and the part of the French scheme analyzed by Cahuc et al (2018) mainly target firms with a temporary drop in demand. Italy also has a scheme for such cases.…”

“…4 As pointed out by Cahuc (2018), the findings relying on firm data are still scarce and, until recently, did not establish a consensus about the effectiveness of STW programs. With the exception of Boeri and Bruecker (2011), most of these studies suggest small or even negative effects of STW on employment in different contexts (Calavrezo et al, 2009(Calavrezo et al, , 2010Kruppe and Scholz, 2014;Tracey and Polachek, 2018). Yet, these results should be interpreted cautiously because the counterintuitive result may be a direct consequence of the strong selection into STW-a bias that the matching and instrumental variable approaches of these studies probably only address partially.…”

The Heterogeneous Impact of Short-Time Work: From Saved Jobs to Windfall Effects

“…Bellmann & Gerner (2011), Bellmann et al (2015) find no effects of short-time work on employment, while Calavrezo et al (2010) and Kruppe & Scholz (2014) find negative effects in different contexts. Tracey & Polachek (2020) find that short-time work reduces layoffs of cyclically sensitive firms but has no effects on other firms.…”