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SHORT-TIME WORK AND RELATED MEASURES TO MITIGATE
THE CONSEQUENCES OF A (PARTIAL) ECONOMIC SHUTDOWN IDEA 2020
later. Waiving loans can also be part of stimulus policy (which can be directed at those with a high propensity to spend additional income). As long as there is a probability of having to repay the loan, loans improve incentives over subsidies. Moving the decision to re-pay or not to after the crisis makes administration simple and makes the program automatically adapt to the long-term shock. The literature on student loans probably provides useful advice on what (not) to do.
But it is clear that many individuals will be missed by the policy entirely, either because they fall victim to imperfect incentives and implementation or because they simply do not qualify (e.g. temporary workers, informal employment, those who do not work). Therefore, it is important to supplement short-time work policies with welfare or disaster- relief policies. Disaster relief may be preferable for its salient short-run and exceptional nature. In the current situation, the usual downside of in-kind transfers and covering people’s expenses (rent, utilities, etc.) only weakly apply, since people are very limited in their ability to adjust their expenses during the shutdown. Food deliveries are also already in place. This may allow the government to extend welfare quickly and without undue bureaucracy for those in need, because low cash transfers make these schemes very unattractive. As above, ex post targeting can help.
B. Key Aspects of Designing Short-Time Work Policies
Keeping as much economic activity running as is feasible reduces short-term adjustment costs. Companies and workers differ in their need to reduce hours, but also in their need and ability to continue working. The ideal level of economic activity thereby varies between employers and even between jobs. Thus, a fixed reduction in hours or a fixed amount paid or share of salary that is replaced will result in too few or too many hours worked and ultimately contribute to more jobs and companies being destroyed. The government does not have the information to choose sensible levels of the subsidy for individual cases, so employers and employees need to be given flexibility to choose the level of short-time work that is viable for both sides. At the same time, the policy needs to ensure that the chosen reduction in work hours is also socially desirable. A key concern is to incentivize more work to continue, which not only leads to more production and higher salaries (lower short run adjustment costs), but also supports development of creative ways to continue work and adaptation to the new situation (mitigating long-run adjustment costs). Allowing employers and employees to agree on the share of hours
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