TY  - RPRT
        AU  - Dengler, Thomas
AU  - Gehrke, Britta
        TI  - Short-Time Work and Precautionary Savings
        PY  - 2021/Apr/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 14329
        UR  - https://www.iza.org/index.php/publications/dp14329
        AB  - 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.
        KW  - short-time work
KW  - fiscal policy
KW  - incomplete asset markets
KW  - unemployment risk
KW  - matching frictions
        ER  -