Employment Retention in the Recession: Some Microeconomic Evidence on the Effects of Short-Time Work in Germany

Stefan S. Speckesser, University of Westminster

The short-time work programme in Germany allows firms in a recession to keep their staff and to claim short-time work compensation for the working-time reduction paid by the public unemployment insurance. In the current recession, the programme covers more than one million workers with an average time reduction of 34%. Although the programme is very substantial, only little is known about its individual or firm effects or long-term outcomes. This paper estimates such outcomes using data for short-time workers of the recession 1993/94. It follows matched individual employment biographies of short-time workers and comparable other workers and finds evidence of a transitory employment effect lasting for about two months. In addition, there are significantly lower wages for short-time workers in the long run indicating that positive employment effects in the short run may reduce labour reallocation towards production with higher profitability and higher wages in the long run.