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

October 1, 2021

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Format: Chicago

Shekhar Aiyar, and Mai Dao. The Effectiveness of Job-Retention Schemes: COVID-19 Evidence From the German States, (USA: International Monetary Fund, 2021) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: COVID-19, Employment, Health, Labor, Labor demand, Labor markets, Unemployment

Keywords: Covid-19, COVID-19, Employment, Employment growth, Evidence from the German States, Global, Job-retention scheme, KA take-up, Kurzarbeit, Labor demand, Labor demand shock, Labor markets, Short-time work, Unemployment

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/242
Stock No:

WPIEA2021242
ISBN:

9781513596174
ISSN:

1018-5941

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