Does Short-Time Work Prevent Unemployment?

Abstract

We study whether the Swiss short-time work (STW) scheme reduced layoffs during and in the aftermath of the Great Recession. While previous firm-level studies compare firms that used and did not use STW, we focus on firms that applied for STW at cantonal employment agencies, responsible for approving STW in Switzerland. Based on a quarterly establishment-level panel dataset linking administrative datasources, we compare the evolution of layoffs, hiring, and employment before and after application for STW between establishments that applied successfully and those that did not, exploiting the substantial differences in approval practices across cantons. In contrast to most previous studies, we find strong evidence that STW prevents rather than postpones layoffs of workers, especially in the quarters immediately following the application. These effects are concentrated among low- and middle-qualified workers. The estimates suggest that the savings in Terms of unemployment benefit payments may be large enough to fully compensate the spending on STW benefits in the Swiss case.