With short-time work programs, governments allow firms experiencing temporary demand or productivity shocks to reduce hours worked, while providing income support to their employees for the hours not worked. A new study finds that such policies can improve employment outcomes for workers during periods of crisis. By participating in these programs, firms are able to retain more workers and are more likely to survive. In the event of prolonged economic shocks, however, short-time work programs may impair efficient labor market allocation.
During periods of difficulty, due to productivity shocks or widespread economic crises, firms might be forced to lay off part of their workforce as a cost-cutting solution. Through short-time work (STW) programs, governments act to prevent mass layoffs by subsidizing companies to retain their employees while reducing individual working hours. Such measures were especially popular during the COVID pandemic, when a third of the European labor force was under a short-time work scheme.
To understand the effects of STW on firm and employee outcomes, in a forthcoming paper, Professors Giulia Giupponi (Bocconi University) and Camille Landais (London School of Economics) study the impact of such programs in Italy during the Great Recession. Using detailed administrative data on companies and individual workers, they exploit variation in eligibility across Italian firms for a STW program, the Cassa Integrazione Guadagni Straordinaria, to shed light on the employment, productivity, and welfare effects of the policy.
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