Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330264 
Year of Publication: 
2025
Series/Report no.: 
Helsinki GSE Discussion Papers No. 45
Publisher: 
Helsinki Graduate School of Economics, Helsinki
Abstract: 
Are furlough schemes useful under normal business cycle conditions? We address this question using administrative data from Finland, where such a scheme has long existed, and a model of firm dynamics with hiring and layoff costs, frictional unemployment, and firm-level wage rigidity. Furloughs provide firms with flexibility by allowing temporary workforce reductions at a lower cost than layoffs followed by rehiring. Yet in the model, it is optimal to eliminate the furlough option, as it does little to facilitate reallocation from low productivity to high productivity firms and does not reduce layoffs much. In contrast, a small layoff tax improves welfare by balancing employment gains against reduced productivity
Subjects: 
furloughs
firm dynamics
layoffs
labor market
JEL: 
E24
J63
J64
J65
ISBN: 
978-952-7543-43-6
Document Type: 
Working Paper

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