Short-time Work and Unemployment: Long-term Effects on Workers’ Labor-market Outcomes, Time Use and Life Satisfaction

Abstract

Many countries use job-retention schemes, such as short-time work (STW), to stabilize the labor market during economic downturns. While these schemes might prevent unemployment (UE) and its adverse effects on workers, STW could also deter workers from moving to more productive firms, thereby negatively affecting their labor market outcomes in the long run. We analyze the long-term effects of STW and UE on individual workers using survey data from the SOEP for 1984–2023, which allows us to examine a broad set of yearly measured outcome variables, including employment, weekly working hours, real hourly wages, time spent on unpaid care work and life satisfaction. For the empirical analysis, we employ a two-step procedure that includes propensity score matching and an event-study model with individual fixed effects. Our findings suggest that, in the German institutional context, STW had no significant negative effects on workers’ labor market outcomes in the financial crisis of 2008/2009 and the economic crisis caused by the COVID-19 pandemic. This suggests that STW did not deter workers from switching to more productive firms. For the economic crisis following German reunification in the 1990s, however, we find that STW negatively affects workers’ long-term outcomes, albeit less strongly than episodes of UE. These findings suggest that the stabilizing effect of STW strongly depends on the economic context.