Page 12 - IDEA Kurzarbeit zahranicni zkusenost Covid19 duben2020 13
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SHORT-TIME WORK AND RELATED MEASURES TO MITIGATE
THE CONSEQUENCES OF A (PARTIAL) ECONOMIC SHUTDOWN IDEA 2020
2. Overview of Key Tools to Address These Problems A. Scope for Short-time Work and Complementary Measures
To keep the discussion of the merits of short-time work focused, we first provide a brief overview of its main merits and which alternative measures are available.
Short-time work compensation schemes4 compensate workers for the lower income they receive while they work shorter hours than usual. Employees on short-time work usually receive less than their usual salary, but more than what they would be paid on an hourly basis or what unemployment insurance would pay (i.e. the replacement rate is less than 100%, but higher than the ratio of current and usual hours and the unemployment insurance replacement rate). In addition to the replacement rate, key policy design choices are the eligibility criteria, the reductions in hours worked allowed, and the shares of the cost imposed on workers, firms and the government. The availability of short-time work compensation makes it easier for employees to temporarily reduce their work hours. Thereby, they allow employers to retain workers they might otherwise have to lay off during hard times. The key advantage of short-time work is that it can keep people in employment and companies in business during temporary economic downturns. It thereby preserves valuable employer-employee relationships, reduces unemployment insurance take up and can help to limit firm bankruptcies or bailouts. These advantages are particularly pronounced for large economic shocks, rigid labor markets and generous unemployment insurance schemes. Key downsides of short-time work compensation schemes are that they limit job search and separations that would be useful in the process of adaptation to a changing environment, and they may limit labor market access to freelancers, temporary workers, etc. They also provide a free and inconsequential transfer to companies that would have been able to reduce hours while maintaining full pay and employees who would have been willing to work reduced hours without compensation.
4 Cahuc (2019) provides an excellent overview. Section 2B characterizes common short-time work policies, Section 2C provides further reading and review.
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