Working Papers

Why Was Short-Time Work Unattractive During the Crisis?


In many OECD countries, the sharp increase in unemployment rates during the crisis has stimulated the implementation of various labor market policies, with the purpose of reducing layoffs. Among these LMPs, short-time work schemes have held a prominent place. Several economists underlined the contribution of the Kurzarbeit1 to the German “job miracle”. However, short-time work take-up rates remained quite low in most countries, including France.

This master thesis is the first one to examine the (under-)use of short-time work arrangements in France during the crisis. Given the absence of theoretical literature on the topic, we develop a basic illustrative model to present our main predictions. We then combine several extensive and original databases to draw up a detailed picture of short-time work establishments in France and highlight the main determinants of the propensity to use the scheme.

Our empirical estimations provide three key findings. First, the vast majority of French establishments adjusted to the crisis through a reduction of temporary and short-term contracts. Short-time work establishments, which mainly employed permanent workers and therefore could not adjust easily on their extensive margin, were therefore the exception rather than the rule on a quite flexible French labor market.

Second, when studying a small sample extracted from the REPONSE survey, we find that short-time work establishments seem to share some characteristics with typical German establishments. For example, they are more often export-oriented and more used to negotiate with their employees’ representatives than non-STW establishments. Consequently, the success of short-time work in Germany is probably highly country-specific and might not be directly reproducible in France. Finally, we use a reform implemented in January 2009 – a differentiated increase in the state compensation level according to establishments’ size – to investigate the impact of the generosity of the scheme. The results suggest that the reform increased slightly the propensity to use short-time work for the establishments which benefited from higher levels of state compensation. Further research is nevertheless needed to refine these estimates.