The Long-Run Effects of Short-Time Work on Workers: Evidence from Austria

Abstract

Short-time work (STW) schemes are widely used in European countries to preserve jobs during recessions, but their long-term consequences for workers remain unclear. Using matched employer–employee data from Austrian social security registers, we predict individual layoff risk during the Great Recession and exploit variation in STW take-up across similar firms to identify the long-term effects of STW. Comparing workers with the same ex ante layoff risk, we uncover substantial heterogeneity: STW benefits workers facing a high risk of job loss, while harming workers with low layoff risk. We interpret these findings through a dynamic equilibrium search model with heterogeneous workers and firms exposed to aggregate shocks, estimated on the Austrian manufacturing sector. We use the model to assess the cost-effectiveness of STW accounting for unemployment insurance savings, imperfect targeting, and dynamic losses in allocative efficiency.

Lorenzo Pesaresi

Research Fellow

I am a Research Fellow in Economics at the Bank of Italy. My research interests are in Macroeconomics, Labor Economics, Search Theory, and Monetary Economics.