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SHORT-TIME WORK AND RELATED MEASURES TO MITIGATE
THE CONSEQUENCES OF A (PARTIAL) ECONOMIC SHUTDOWN IDEA 2020
in need. Other disadvantages can include high administrative costs, creation of work disincentives and a stifling effect on recovery because welfare take-up is often persistent.
Universal transfers7 do not explicitly target the poor, but are available to all citizens or large categories of citizens (e.g. winter fuel allowance; state retirement pension, Disability Living Allowance, contributions-based JSA). Universal transfers do not have many of the problems inherent in means-tested schemes. However, two primary drawbacks of these programs are the high implementation costs and low effectiveness in targeting households in need. Moreover, some transfers provide more support to the better-off than to low income households.
Subsidized loans8 usually provide the borrower an opportunity to fully or partially avoid paying interest on the debt, which effectively decreases the cost of borrowing. The government may also make loans more accessible by paying for defaults. The eligibility criteria for subsidized loans may differ according to the form of the loans. Demonstration of financial need or other criteria can be required to qualify for a loan. Currently, the most popular form of subsidized loans is student loans to help students in need to cover their education costs. The main advantage of these loans is that funding is made available when commercial loans are not possible. However, eligibility screening and debt collection mechanisms may result in significant administrative costs.
B. Short-time Work Policies During the Great Recession
Short-time work became a popular tool to mitigate the consequences of the great recession. This summary relies heavily on the excellent overviews in Cahuc and Carcillo (2011) and Hijzen and Venn (2011). 18 of 33 OECD countries had short-time work schemes in place before the recession. 25 countries had such schemes in 2009. The policies differed substantially in design. Table 3 provides an overview of the differences in key design features for selected countries.
7 An overview and comparison of means-tested programs and universal transfers for the UK and other European countries can be found here.
8 Chapman (2006) provides an overview of a specific type of subsidized loans – Income Contingent Loans. 13