Short‐Time Work and Employment Stability: Evidence from a Policy Change

Publication Date01 Mar 2018
AuthorJosé M. Arranz,Virginia Hernanz,Carlos García‐Serrano
British Journal of Industrial Relations doi: 10.1111/bjir.12250
56:1 March 2018 0007–1080 pp. 189–222
Short-Time Work and Employment
Stability: Evidence from a Policy Change
Jos ´
e M. Arranz, Carlos Garc´
and Virginia Hernanz
This paper investigates whether short-time work (STW) programmes achieve
their stated goal of being devices intended to preserve jobs and keep workers
employed in times of crisis. Our identification strategy exploits a change
in the financial incentives provided to employers and employees for the
temporary suspension of work contracts or the reduction of working time.
We use longitudinal administrative data and estimate dierence-in-dierences
regressions and instrumental variable bivariate probit models with endogenous
covariates,which try to take account of the potential endogeneity of participation
in STW. Our results suggest that discretionary policy changes in the incentives
of STW schemes can be eective in the short run but theylose their ability when
the decline in demand and the lack of work are more permanent.
1. Introduction
Short-time work (STW) schemes are intended to preserve jobs at firms
experiencing temporarily low demand by encouraging work-sharing, while
also providing income support to workers whose hours are reduced due
to a shortened work week or temporary layos. A crucial aspect of STW
programmes is that the contract of an employee with the firm is maintained
during the period of reduced hours or the suspension of work. Although
scarcely studied in the past, with few empirical studies devoted to this issue,
there was a relative upsurge of interest in STW during the last recession. This
was the result of several changes.
First, most governments in OECD countries took specific measures
in response to the crisis to promote its use, by weakening eligibility
and conditionality requirements and increasing generosity, while others
The authors are at Universidad de Alcal´
2017 John Wiley& Sons Ltd.
190 British Journal of Industrial Relations
established new programmes (Eurofound 2010; Panteia 2012). Second, take-
up rates increased substantially at the beginning of the recession, although
dierences across countries were large (Hijzen and Martin 2013). Third, the
resources devoted to STW schemes were substantial: expenditure amounted
to some 5000 million euros in Germany, 5500 million euros in Italy and nearly
6000 million euros in Japan in 2009, that is between 0.1 per cent and 0.3
per cent of GDP in these countries (Boeri and Bruecker 2011). And finally,
some analysts and policymakers attributed the good performance of some
national labour markets (for instance, the German one) to the role played
by STW schemes to prevent the adjustment along the extensive margin
(employment) and to favour instead the adjustment along the intensive margin
(hours of work per employee).1
Therefore, given the size and prominence of STW schemes during crises
in general and during the last recession in particular, it would be important
to evaluate their impact. Both country-level and firm-level approaches have
been used in the otherwise scarce empirical literature.2Macro estimates
are designed to exploit the country and time variation in take-up rates to
analyse the quantitative impacts of STW schemes on labourmarket outcomes
(Abraham and Houseman 1994; Van Audenrode 1994). Focusing on the
last recession, Arpaia et al. (2010) and Hijzen and Venn (2011) estimate a
model in which the impact of STW is captured with an interaction term
between one dummy signalling the 2008–2009 recession and another dummy
signalling countries with STW programmes in place. Micro estimates are
based on establishment- or firm-level data and exploit the variation between
participating and non-participating employers within countries (Calavrezo
et al. 2009, 2010; Crimmann et al. 2012; Dietz et al. 2011; Duhautois et al.
2009). One shortcoming of most studies is that they do not usually take
account of the potential endogeneity of STW schemes: in the case of the
macro approach, that STW may be endogenous with respect to the role of
macroeconomic conditions that aect both employment and STW but is not
captured by the change in output; in the case of the microapproach, that there
is a selection problem that arises because participant firms in STW schemes
also tend to be less competitive than other firms that can be used as a control
However, subsequent works have improved on the econometric analysis. On
the macro side, they do this by instrumenting the STW take-up rate: Cahuc
and Carcillo (2011) use the permissible reductions in weekly working hours
that can be compensated before 2008 and the STW take-up rate in 2007 as
instrument, while Boeri and Bruecker (2011) and Hijzen and Martin (2013)
instrument using the age of the corresponding national programme. On the
micro side, Boeri and Bruecker (2011) and Bellmann et al. (2012) use an
instrument based on the experience of firms with STW before the crisis. In
general, macro studies have found short-time positive impacts of STW on
employment during the 2008–2009 recession (although deadweightcosts seem
to be sizable as well,especially in the medium run), whereas empirical evidence
2017 John Wiley& Sons Ltd.
Short-Time Work and Employment Stability 191
from micro studies which control for STW endogeneity are not so clear-cut,
showing either small positive eects or no eect at all.3
Wecontribute to this literature by using a worker-levelapproach, examining
whether STW programmes (and their changes) achieve their stated goal of
being devices intended to preserve jobs and keep workers employed. This
is relevant since, as Kruppe and Scholz (2014) point out, when using either
country- or firm-level data, one is unable to evaluate the eect of STW
on individual labour market biographies, so that it may well be that (even
when no employment preserving eect of STW on either the country or the
establishment level is found) STW might contribute to prevent individual
unemployment. To do so we exploit the fact that in March 2009, about one
year after the onset of the Great Recession, the Spanish government decided
to increase the financial incentives provided to employers and employees for
the temporary suspension of work contracts or the reduction of workingtime.
All this is novel since, as far as we know, no previous study, first, has focused
attention on the impact of participation in STW on the subsequent labour
market status or trajectories of workers, or, second, has taken advantage of
changes implemented in the programmes during the recession in order to
evaluate their impact.4
This paper uses longitudinal administrative data, defines treatment and
control groups before and after the policy change and examines the labour
market transitions of both groups. To assess the robustness of our evaluation
exercise we consider two alternative control groups; we also define and use
a subsample of workers in manufacturing, since this is the industry that
contains the majority of STW arrangements. Instrumental variable (IV)
recursive bivariate probit models with endogenous covariates are estimated.
The dependent variable (the stability of employment) is measured as the
probability that an individual who was already employed at the time of the
implementation of such an arrangement remains employed with the same
employer in the future (one, two and three years after implementation).
A key feature of our setting is that participation in STW is instrumented,
since single-equation estimates of its eect will be biased if this chance is
correlated with unobserved factors that determine both STW eligibility and
employment permanence. This allows us to identify the eect of participation
on the dierence-in-dierence between pre- and post-reform performance of
treatment and control groups, thereby controlling for unobserved sources of
heterogeneity that maycreate a spurious correlation between treatment status
and labour market outcomes.
The structure of the article runs as follows. Section 2 provides a description
of the STW regulations in Spain and the changes adopted in 2009. Section 3
presents the data and some descriptive analysis. Section 4 outlines the
empirical specifications used to investigate the eects of STW schemes and
their changes on individuals’ outcomes. Section 5 reports and discusses the
results. Finally, Section 6 concludes.
2017 John Wiley& Sons Ltd.

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