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SHORT-TIME WORK AND RELATED MEASURES TO MITIGATE
THE CONSEQUENCES OF A (PARTIAL) ECONOMIC SHUTDOWN IDEA 2020
Similarly, Cahuc, Kramarz and Nevoux (2018) also find that short-time work leads to reductions in hours worked but only saves jobs in firms that are hit by severe shock (i.e. with large drops in revenues, particularly when leverage is high). For these firms, they find short-time work to be a very cost-effective measure to save jobs compared to public unemployment insurance programs or other alternatives.
However, short-time work policies likely have distortionary effects on the labor market. Cahuc and Carcillo (2011) find that short-time work programs may lead to inefficient reductions in working hours and may potentially protect the jobs of currently employed workers at the expense of outsiders. Hence, it may restrict the ability of firms to hire potentially more productive new workers. Furthermore, Giupponi and Landais (2018) show that low-productive firms are more likely to participate in short-time work than high-productive firms. The negative selection of firms may negatively influence the reallocation in the labor market (employer-employee mismatch) and may explain the absence of long-term benefits of short-time work programs. The efficiency of short-time work is heterogeneous across firms. Cahuc, Kramarz, and Nevoux, (2018) show that credit-constrained firms benefit more from short-time work as they can use the program to partly finance the reduction of hours during the recession of jobs at no risk of being lost during the recession. Furthermore, they show that short-time work programs have positive effects only for firms that are hit with a large negative shock while it does not help less affected firms.
Due to the potential distortionary effects of short-time work programs on labor market outcomes, the effectiveness of short-time work mainly depends on how it is implemented. There are four main features of implementation highlighted in the previous literature that determine the effectiveness of short-time work. First, the target group for short-time work programs should be the most affected firms, e.g., those with large decreases in revenues or firms with high leverage, as these firms are more likely to benefit. Cahuc, Kramarz, and Nevoux (2018) suggest screening firms by not subsidizing small reductions in non-worked hours per employee, because employees whose hours are reduced by small amounts are less likely to lose their jobs. Second, use of experience rating (requiring firms that use short-time work to bear part of its cost) reduces the probability that some firms may choose to use short-time work as a publicly financed tool to overcome repetitive shocks instead of finding other ways to cope with repeated difficulties (Cahuc, 2019). Third, it is
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