Kurzarbeit and Natural Disasters: How Effective Are Short-Time Working Allowances in Avoiding Unemployment?

Discussion Papers 1909, 49 S.

Julio G. Fournier Gabela, Luis Sarmiento


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There is substantial evidence on the effectiveness of short-time work on reducing unemployment. However, no study looks at its role during natural disasters. This article exploits the exogenous nature of the 2013 European floods to assess if the impact depends on the quality of the short-time work mechanism across affected counties. We use regression discontinuity designs to show that unemployment does not increase in regions with robust programs while rising up to seventeen percent in areas with less robust mechanisms. Our results are relevant to the literature on how institutional quality influences recovery and suggests that short-time work programs are useful against unforeseeable productivity shocks besides financial crises.

JEL-Classification: J68;H84;Q54;C22
Keywords: Flooding, short-time work, regional unemployment, regression discontinuity in time, institutions