IPP Policy brief n°33 - June 2018

The inefficiency of regular reliance on short-time work

IPP Policy brief n°33

June 2018

Authors : Pierre Cahuc and Sandra Nevoux

Contacts cahuc@ensae.frsandra.nevoux@banque-france.fr

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logo-pdf-minThe inefficiency of regular reliance on short-time work

 

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Summary :

Short-time work makes it possible for companies faced with temporary and exceptional circumstances to receive subsidies to reduce the number of hours worked by their employees by remunerating the time off. Short-time work has both beneficial and detrimental effects. During the Great Recession of 2008-2009, there was renewed interest in short-time work as part of the fight against unemployment, particularly in France, where it underwent successive reforms. This policy brief shows that the short-time work reforms carried out after the recession have mainly benefited large firms using them on a regular basis to cope with seasonal fluctuations in business activity. This expansion of short-time work is inefficient because it subsidizes periods of inactivity, thus reducing total output. In this context, it would be desirable to introduce a bonus-malus system by which companies would fund short-time work via a tax paid over several years and that is proportional to their contribution to the cost of the scheme.

Key points :

  • The growth of the short-time work scheme since 2008 has primarily benefited large companies using it on a regular basis to cope with seasonal fluctuations in business activity.
  • These subsidies to companies facing strong seasonal fluctuations at the expense of the rest of the economy result in a decrease in total output.
  • The introduction of a bonus-malus system, within which companies would fund short-time work via a tax paid over several years and that is proportional to their contribution to the cost of this scheme, would make this policy more effective.