%0 Report
        %A Dengler, Thomas
%A Gehrke, Britta
        %T Short-Time Work and Precautionary Savings
        %D 2021
        %8 2021 Apr
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 14329
        %U https://www.iza.org/index.php/publications/dp14329
        %X In the Covid-19 crisis, most OECD countries use short-time work schemes (subsidized working time reductions) to preserve employment relationships. This paper studies whether short-time work can save jobs through stabilizing aggregate demand in recessions. We build a New Keynesian model with incomplete asset markets and labor market frictions, featuring an endogenous firing as well as a short-time work decision. 
In recessions, short-time work reduces the unemployment risk of workers, which mitigates their precautionary savings motive and aggregate demand falls by less. Using a quantitative model analysis, we show that this channel can increase the stabilization potential of short-time work over the business cycle up to 55%, even more when monetary policy is constrained by the zero lower bound. Further, an increase of the short-time work replacement rate can be more effective compared to an increase of the unemployment benefit replacement rate.
        %K short-time work
%K fiscal policy
%K incomplete asset markets
%K unemployment risk
%K matching frictions