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Pierre Cahuc - Short-term work compensation

Pierre Cahuc, Professor of Economics, ENSAE-CREST, Ecole Polytechnique, discusses short-term work compensation.

Short-term work has been a policy that has been widely used in Germany and in many countries during the recession and the question is to whether it improves employment. There has been some research looking at that and the answer is definitively yes. There is an improvement in employment, especially for firms that face credit constraint and so these types of firms survive and recover faster. So. there is some empirical evidence about that, we need to do more, but today this is what we know about this.

Who benefits the most from work compensation?
Everyone does not benefit in the same way from short-term work. Obviously permanent workers benefit more because they are those who are usually involved in this kind of programmes. Temporary workers usually go from job to job, they benefit less, and even this can be counterproductive for them because it can be more difficult for them to be recruited because permanent workers are more protected than when on a short-term programme.

Under what conditions should short-term compensation be used?
Short-term workers should be used during recessions when firms find it difficult to find funds to keep workers. In normal time short-term work is much less useful because firms have more access to credit and it’s easier for them to develop projects and to keep workers. So, short-term work should be used in a recession but much less in normal time.

In addition, policymakers should be aware that firms should not repeatedly use short-term work because there is a risk to a firm that they are not very productive, and we need to have quality firms, ones that increase profits and they increase productivity.

From that point of view, it’s important that there is some expert rating in short-term work, meaning that firms that get short-term work compensation have to repay, reimburse to some extent the costs of these programmes when they are in better condition.

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