Fritz Thyssen Research Foundation

The macroeconomic effects of short-time work and fiscal policy – An analysis on the interface between dynamic macro-labor economics and applied econometrics


Does short-time work save jobs? A business cycle analysis

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.

Codes and data

Press (1,2,3)

Some surprising facts about working time accounts and the business cycle

Almut Balleer, Britta Gehrke and Christian Merkl

International Journal of Manpower, 38(7), 940-953

Abstract: Purpose: Working time accounts (WTAs) allow firms to smooth hours worked over time. The purpose of this paper is to analyze whether this increase in flexibility has also affected how firms adjust employment in Germany over the business cycle.
Design/methodology/approach: This paper uses rich microeconomic panel data and fixed effects estimations to compare the employment adjustment of firms with and without WTAs.
Findings: The authors 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 (STW) to adjust hours worked instead. However, the authors find that firms with WTAs use STW more than firms without WTAs.
Originality/value: 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.


Fiscal Rules and Unemployment

Britta Gehrke

Macroeconomic Dynamics, 1-34

Abstract: This paper shows how fiscal policy affects unemployment in a New Keynesian model with search and matching frictions and distortionary taxation. The model is estimated using US data that includes labor market flows and distinct fiscal instruments. Several findings stand out. First, unemployment multipliers for spending and consumption tax cuts are substantial, even though output multipliers turn out to be less than one. Second, multipliers for labor tax cuts are small. Third, fiscal rules enhance the positive effects of discretionary fiscal policy. However, these expansionary effects on the multipliers are modest compared to earlier studies.

Tax data

The German Labor Market During the Great Recession: Shocks and Institutions

Britta Gehrke, Christian Merkl and Wolfgang Lechthaler

Economic Modelling, 78, 192-208

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

Forthcoming in The Scandinavian Journal of Economics

Abstract:Short‐time work is a labor market policy that subsidizes working time reductions among firms in financial difficulty to prevent layoffs. Many OECD countries have used this policy in the Great Recession. This paper shows that the effects of short‐time work are strongly time dependent and non‐linear over the business cycle. It may save up to 0.87 jobs per short‐time worker in deep economic crises. In expansions, the effects are smaller and may turn negative. We disentangle discretionary short‐time work from automatic stabilization in German data using smooth transition VARs.