The macroeconomic effects of short-time work and fiscal policy – An analysis on the interface between dynamic macro-labor economics and applied econometrics
Almut Balleer, Britta Gehrke, Wolfgang Lechthaler and Christian Merkl
European Economic Review, Volume 84, May 2016, Pages 99–122
Abstract: In the Great Recession most OECD countries used short-time work (publicly subsidized working time reductions) to counteract a steep increase in unemployment. We show that short-time work can actually save jobs. However, there is an important distinction to be made: while the rule-based component of short-time work is a cost-efficient job saver, the discretionary component is completely ineffective. In a case study for Germany, we use the rich data available to combine micro- and macroeconomic evidence with macroeconomic modeling in order to identify, quantify and interpret these two components of short-time work.
Almut Balleer, Britta Gehrke and Christian Merkl
Forthcoming in International Journal of Manpower
Abstract: Working time accounts (WTAs) allow firms to smooth hours worked over time. This paper analyzes whether this increase in flexibility has also affected how firms adjust employment in Germany. Using a rich microeconomic dataset, we show that firms with WTAs show a similar separation and hiring behavior in response to revenue changes as firms without WTAs. One possible explanation is that firms without WTAs used short-time work instead to adjust hours worked. However, we find that firms with WTAs use short-time work more than firms without WTAs. These findings call into question the popular hypothesis that WTAs were the key driver of the unusually small increase in German unemployment in the Great Recession.
IWQW Discussion Paper, No. 2014/10
Abstract: This paper analyzes fiscal policy under fiscal rules in a New Keynesian model with search and matching frictions and distortionary taxation. The model is estimated with US data including detailed information on fiscal instruments. Several findings stand out. First, fiscal rules enhance the positive effects of discretionary fiscal policy on output and unemployment if they influence the expected future path of interest rates. However, effects are smaller as suggested in the existing literature. Second, spending and consumption tax cuts have the largest multipliers. Third, multipliers for labor tax cuts are small. These results originate from the labor market friction and persist in an economy where the friction is more severe. Demand side disturbances explain the majority of labor market dynamics.
Britta Gehrke, Christian Merkl and Wolfgang Lechthaler
Abstract: This paper analyzes Germany’s unusual labor market experience during the Great Recession. We estimate a general equilibrium model with a detailed labor market block for post-unification Germany. This allows us to disentangle the role of institutions (short-time work, government spending rules) and shocks (aggregate, labor market, and policy shocks) and to perform counterfactual exercises. We identify positive labor market performance shocks (likely caused by labor market reforms) as the key driver for the“German labor market miracle” during the Great Recession.
The Effects of Short-Time Work Policy – Any Sectoral Differences?
Sebastian Becker and Britta Gehrke
Abstract: Short-time work is considered an important factor of the so called German Labor Market Miracle. However, previous findings suggest that short-time work was effective as an automatic stabilizer, but that discretionary changes of the scheme had no effect on aggregate employment. Using a panel dataset of economic sectors, we test if these so called discretionary policy shocks did have stabilizing effects on employment in certain sectors of the German economy. We find no evidence for sector specific effects. i.e. the policy shocks are ineffective as a whole on the sectoral and the aggregate level.
Counteracting unemployment in crises: Nonlinear effects of short-time work policy
Britta Gehrke and Brigitte Hochmuth
Abstract: Short-time work is a labor market policy that subsidizes working time reductions of ﬁrms in order to stabilize employment. Many OECD countries have used this policy, for example, in the Great Recession. This paper shows that the effects of discretionary short-time work are strongly time dependent: It may save up to 0.95 jobs per short-time worker in deep economic crises. In contrast, in normal times and expansions the effects are smaller and may even turn negative. Our results demonstrate that the policy is more efficient, the deeper the recession. We disentangle discretionary short-time work policy from automatic stabilization in German data and estimate time varying employment effects using a smooth transition VAR.