The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States

Author/Editor:

Shekhar Aiyar ; Mai Chi Dao

Publication Date:

October 1, 2021

Electronic Access:

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Summary:

Kurzarbeit (KA), Germany’s short-time work program, is widely credited with saving jobs and supporting domestic demand during the COVID-19 recession. We quantify the impact by exploiting state-level variation in exposure to the pandemic shock and KA take-up. We construct a shift-share measure of the labor demand shock and instrument KA take-up using the pre-existing, state-specific share of workers eligible for KA. We find, first, that KA was crucial in mitigating unemployment: absent its expansion the unemployment rate would have increased by an additional 3 pp on average at the trough of the recession. Second, KA also bolstered domestic demand: the contraction in consumption could have been 2 to 3 times larger absent the program. Finally, we provide preliminary evidence on the sensitivity of the medium-run reallocation of resources to the prevalence of jobretention schemes during the Global Financial Crisis.

Series:

Working Paper No. 2021/242

Subject:

Frequency:

regular

English

Publication Date:

October 1, 2021

ISBN/ISSN:

9781513596174/1018-5941

Stock No:

WPIEA2021242

Pages:

37

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