Short-time work in search and matching models: Evidence from Germany during the Covid-19 crisis

Peltonen, Juho (2023): Short-time work in search and matching models: Evidence from Germany during the Covid-19 crisis.

Abstract

This paper estimates the extent to which unemployment in Germany would have been increased during the Covid-19 recession without a short-time work (STW) labor-market policy which enables employers to reduce temporarily the working hours of full-time workers. A Bayesian estimation of a general equilibrium model with a STW policy, and a simulation of a counterfactual model without STW, show that the German unemployment rate would have been 4.2 percentage points higher without the policy. These results indicate that the STW participates in preventing excess job destruction during economic downturns, and in stabilizing unemployment fluctuations over business cycles.

• Item Type: MPRA Paper
• Language: English
• Keywords: Search and matching, short-time work, Bayesian estimation
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J63 - Turnover ; Vacancies ; Layoffs

References

Abraham, K. G., & Houseman, S. N. (1994). Does employment protection inhibit labor market flexibility? Lessons from Germany, France, and Belgium. In Social protection versus economic flexibility: Is there a tradeoff?

Adjemian, S., Bastani, H., Juillard, M., Karamé, F., Mihoubi, F., Mutschler, W., ... Villemot, S. (2022, January). Dynare: Reference Manual Version 5 (Dynare Work- ing Papers No. 72). CEPREMAP. Retrieved from https://ideas.repec.org/p/ cpm/dynare/072.html

Aiyar, S. S., & Dao, M. (2021). The effectiveness of job-retention schemes: COVID-19 evidence from the German states. IMF Working Paper, 2021(242), A001.

Albertini, J., Fairise, X., Poirier, A., & Terriau, A. (2022). Short-time work policies during the covid-19 pandemic. Annals of Economics and Statistics(146), 123–172.

Balleer, A., Gehrke, B., Lechthaler, W., & Merkl, C. (2016). Does short-time work save jobs? A business cycle analysis. European Economic Review, 84, 99–122.

Benghalem, H., Cahuc, P., & Villedieu, P. (2023). The lock-in effects of information on part-time unemployment benefits. Journal of Human Resources.

Boeri, T., & Bruecker, H. (2011). Short-time work benefits revisited: some lessons from the Great Recession. Economic Policy, 26(68), 697–765.

Cahuc, P., Kramarz, F., & Nevoux, S. (2021). The Heterogeneous Impact of Short-Time Work: From Saved Jobs to Windfall Effects. CEPR Discussion Paper No. 16168 .

Cooper, R., Meyer, M., & Schott, I. (2017). The employment and output effects of short- time work in germany (Working Paper No. 23688). National Bureau of Economic Research.

Dengler, T., & Gehrke, B. (2021). Short-time work and precautionary savings. IZA Discussion Paper(No. 14329).

Den Haan, W. J., Ramey, G., & Watson, J. (2000). Job destruction and propagation of shocks. American Economic Review, 90(3), 482–498.

Gehrke, B., Lechthaler, W., & Merkl, C. (2019). The German labor market during the Great Recession: Shocks and institutions. Economic Modelling, 78, 192–208.

Hairault, J.-O., Langot, F., & Osotimehin, S. (2010). Matching frictions, unemployment dynamics and the cost of business cycles. Review of Economic Dynamics, 13(4), 759–779.

Herzog-Stein, A., Nüß, P., Peede, L., & Stein, U. (2021). Germany’s labour market in coronavirus distress - New challenges to safeguarding employment (IMK Working Paper No. 209).

Hijzen, A., & Salvatori, A. (2022). The impact of the COVID-19 crisis across different socio-economic groups and the role of job retention schemes - The case of Switzerland. OECD Social, Employment and Migration Working Papers(268).

Hijzen, A., & Venn, D. (2011). The role of short-time work schemes during the 2008-09 recession. OECD Social, Employment and Migration Working Papers(115).

Hochmuth, B., Kohlbrecher, B., Merkl, C., & Gartner, H. (2021). Hartz IV and the decline of German unemployment: A macroeconomic evaluation. Journal of Economic Dynamics and Control, 127, 104114.

Kopp, D., & Siegenthaler, M. (2021, 01). Short-Time Work and Unemployment in and after the Great Recession. Journal of the European Economic Association, 19(4), 2283–2321.

Krause, M. U., & Uhlig, H. (2012). Transitions in the german labor market: Structure and crisis. Journal of Monetary Economics, 59(1), 64–79.

Krebs, T., & Scheffel, M. (2013). Macroeconomic evaluation of labor market reform in Germany. IMF Economic Review, 61(4), 664–701.

Launov, A., & Wälde, K. (2013). Estimating incentive and welfare effects of nonstationary unemployment benefits. International Economic Review, 54(4), 1159–1198.

Lubik, T. (2009). Estimating a search and matching model of the aggregate labor market. FRB Richmond Economic Quarterly, 95(2), 101–120.

Merkl, C., & Sauerbier, T. (2023). Public employment agency reform, matching efficiency, and German unemployment. IMF Economic Review, 1–48.

Mortensen, D. T., & Pissarides, C. A. (1994). Job Creation and Job Destruction in the Theory of Unemployment. The Review of Economic Studies, 61(3), 397–415.

Müller, T., & Schulten, T. (2020). Ensuring fair Short-Time Work - A European Overview. ETUI Research Paper - Policy Brief 07/2020.

Näf, A., Stucki, Y., & Thomet, J. (2022). The Effects of Firing Costs on Labour Market Dynamics. Economica, 89(354), 461–488.

Niedermayer, K., & Tilly, J. (2016). Employment and welfare effects of short-time work in Germany.

Organisation for Economic Co-operation and Development (OECD). (2020). Job retention schemes during the COVID-19 lockdown and beyond. OECD Publishing.

Osuna, V., & Pérez, J. I. G. (2021). Temporary layoffs, short-time work and COVID-19: the case of a dual labour market. Applied Economic Analysis.

Petrongolo, B., & Pissarides, C. A. (2001). Looking into the Black Box: A Survey of the Matching Function. Journal of Economic Literature, 39(2), 390-431.

Teichgräber, J., Žužek, S., & Hensel, J. (2022). Optimal short-time work: screening for jobs at risk. University of Zurich, Department of Economics, Working Paper(402).