Short-time work benefits: What have we learned from the Great Recession?*

1. Short-time work benefits: What have we learned from the Great Recession?* Herbert BrückerIAB and University of Bamberg SZW Conference Industrial Relations in TransitionThe Hague, March 25, 2013 *Thispresentationisbased on Tito Boeriand Herbert Brücker, „Short-time Work BenefitsRevisited: SomeLessonsfromthe Great Recession“, EconomicPolicy, Vol. 68.

2. “Germanys jobs miracle hasn't received much attention in this country - but its real, its striking. Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a "short-time work scheme", which provides subsidies to employers who reduce workers' hours rather than laying them off. These measures didn't prevent a nasty recession, but Germany got through the recession with remarkably fewjoblosses.” Paul Krugman, New York Times, November 12, 2009

3. STW take-uprates in Germany andthe US, 2007-2010 Sources: US Labour Department, BA Statisticsand OECD.

4. Employment, hoursworkedand real GDP in Germany andthe US, 2007-2010 Sources: IMF and OECD.

5. Outline • The casefor STW benefits • Why do STW take-upratesdifferacross countries? • Do STW benefitsreallyreduceexcesslay-offs? • Are STW benefitsreallytemporary? • Policyconclusions

6. How do STW benefitswork: Theory • Ifoutputisproducedby a standardmultiplicativelyseparableproductionfunctionwherelabourconsistsofthenumberofworkersandworkinghours … • … thencost-minimizationrequiresthatthe total adjustmenttoscaleofproductionisatthe extensive margin, i.e. via lay-offs, whilethenumberofworkinghoursremainsconstant • STW benefitsshiftbalanceto intensive margin, sincebenefitsarepaidconditional on reducedworkinghours

7. The casefor STW: prosandcons • STW contributestointernalizesocialcostsoflay-offs • If experience-rated UB-EPL (Blanchard and Tirole, 2007) is not possible, good to combine UB with STW • Even more so, if wages are downward rigid • But: STW is distortionary since allocation of working hours and number of workers is suboptimal • May postponeindustrialrestructuring • Favoursinsiders vs. outsiders • Similiarmoralhazardproblemsas UB • Thus: STW shouldbetemporary

8. STW take-upratesvarywidelyacross OECD Sources: OECD; HijzenandVenn 2011; owncalculations.

9. Why do STW take-upratesvary? STW are multidimensional institutions, whichvaryby • strictness of eligibility criteria (e.g. minimum UB contribution period, agreement with worker council), • strictness of entitlement criteria (e.g. on-the-job training, job search requirements), • costs for employers, • responsiveness of hourly wages to hours reduction, • replacement rate at minimum hours of reduction and replacement rate at maximum hours of reduction. Moreover, complementary institutions affect STW take-up: • Generosity of UB, EPL

10. Explaining STW take-uprates

11. Thus, STW take-uprates … • increase with strictness of employment protection • decline with generosity of UB • increase with bargaining centralization • increase with STW replacement rate • decline with strictness of entitlement and eligibility criteria • decline with cost contribution of employers

12. Do STW really save jobs? Macroevidence • Cross-country regression with quarterly data based on where • e is employment, y output (GDP), STWR the STW take-up rate (in% of employment), EPL an employment protection index, i the country index, t the time index and Δ the difference operator. • γ1measurestheimpactof STW on employmentwhenoutputchangeiszero, • γ2capturestheway STW affecttheresponsivenessofemploymenttooutputchanges.

13. Macro regression results

14. Thus, implied number of jobs ‘saved’ depends on output decline

15. Implied macro estimates of jobs saved

16. Do STW really save jobs? Microevidence • Microevidencefrom IAB establishmentpanel, an annualsurveyof 16,000 firms • Regression equation: ,,, • where e isemployment, STW theshareofworkersparticipating in STW, WTA theshareofworkersparticipating in working time accountrsandη a vectorofcontrols. • Working time accounts (WTA): a mechanismwhichfacilitatesadjustmentatinternalmargin via credit in workinghourswhichworkersreceiveforovertimework.

17. Estimates of jobs saved by STW and WTA

18. Summaryoffindings • Microestimatesimplythat STW hassaved 435,000 jobs in Germany and WTA 320,000 jobs, respectively • Microestimatespointtosmallerdeadweightlossescomparedtomacroestimates • However, deadweightlossesarelikelytoexistin all countries

19. Are STW reallytemporary? Germany vs. Italy • After Belgium, GermanyandItalyhavetogetherwith Japan thelargest STW schemes in the OECD • The German systemisexplicitlydesignedfortemporaryadjustments, whiletheItalianschemesallows also forstructuraladjustment (CIGS) • The German systeminvolveshigherdegreeofexerience-rating • Bothsystemshavejob-searchrequirements, betterenforced in Germany • The German systemunliketheItaliansystemstronglydiscouragesreductionofworkinghourstowardzero

20. Hourly costs per working hour at hours worked in % of standard working hours in DE and ITA

21. Elasticity of STW take-up rate to economic activity:Rolling regression results

22. Total STW hours (monthly average) in Italy and Germany

23. Whatcanwelearnfromthe Great Recession? • ‚Flexicurity countries‘ and countries withdecentralized wage bargainingtake-upless STW than countries with strong EPL andcentralizedbargaining • Beyondmeasurementerror on thenumberofjobssaved, somedeadweightlossesseemtobeunavoidable • Temporaryworkersdon‘tbenefitfrom STW • Job-searchrequirements, co-financingbyemployersanddisincentivestoreduceworkinghourstozeromake STW moretemporaryandcyclicallymore sensitive. • Cyclicallyadjustedcontributionratesmaycircumventemployers‘ liquidityconstraints