Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263803 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9873
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In the Covid-19 crisis, most OECD countries have used short-time work (subsidized working time reductions) to preserve employment relationships. This paper studies whether short-time work can save jobs through stabilizing aggregate demand in recessions. First, we show that the consumption risk of short-time work is considerably smaller compared to unemployment using household survey data from Germany. Second, we build a New Keynesian model with incomplete asset markets and labor market frictions featuring an endogenous firing and short-time work decision. In recessions, short-time work reduces the unemployment risk of workers, which mitigates their precautionary savings motive. Using a quantitative model analysis, we show that this channel increases the stabilization potential of short-time work over the business cycle.
Subjects: 
short-time work
fiscal policy
incomplete asset markets
unemployment risk
matching frictions
JEL: 
E21
E24
E32
E52
E62
J63
Document Type: 
Working Paper
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