Job retention (JR) schemes have been one of the main policy tools in many OECD countries to contain the employment and social fallout of the COVID‑19 crisis. By May 2020, JR schemes supported about 50 million jobs across the OECD, about ten times as during the global financial crisis. JR schemes seek to preserve jobs at firms experiencing a temporary reduction in business activity by alleviating firms’ labour costs while supporting the incomes of workers whose hours are reduced. They can take the form of short-time work (STW) schemes that directly subsidise hours not worked, such as the German Kurzarbeit or the French Activité partielle. They can also take the form of wage subsidy (WS) schemes that subsidise hours worked but can also be used to top up the earnings of workers on reduced hours, such as the Dutch Emergency Bridging Measure (Noodmatregel Overbrugging Werkgelegenheid, NOW) or the Job Keeper Payment in Australia. A crucial aspect of all JR schemes is that employees keep their contracts with the employer even if their work is suspended.

In the early stages of the COVID‑19 crisis, the overriding concern for governments has been to help firms and workers deal with the sudden and unpredictable decline if not full shut-down in business activity resulting from the government-imposed restrictions to contain the spread of the COVID-19 virus. To maximise take up, many governments have modified existing JR schemes or introduced new ones. These schemes provide the necessary liquidity to firms to hold on to their workers, including their talent and experience, and allows them to ramp up operations quickly once economic activity recovers, without having to go through the process of hiring and training new workers. However, as countries move out of the strict confinement phase, policy makers have to strike the right balance between ensuring adequate support for jobs that are temporarily unviable and limiting the extent to which subsidies reach jobs that would be preserved anyway or that are unviable in the long term.

The objective of this Brief is to discuss the main features of JR schemes deployed by countries during the COVID‑19 lockdown, and how they should be adjusted as restrictions to economic activities are gradually being withdrawn to continue to protect viable jobs without hindering the reallocation of employment towards expanding firms and sectors.

In response to the COVID-19 crisis, most OECD countries took active measures to scale up existing short‑time work (STW) schemes, introduce new ones or create temporary wage subsidies to preserve jobs and support incomes.

STW schemes provide subsidies to firms to cover all or part of the cost of hours not worked, protecting workers’ income and mitigating costs for firms. Their main purpose is to provide support for firms facing a temporary decline in demand to retain jobs that have become unprofitable in the short-term but that are likely to remain viable in the medium-term. The design of STW schemes varies considerably across countries as countries take different approaches to ensure cost-effectiveness (Hijzen and Venn, 2011[1]). See Box 1 for a description of STW schemes in selected OECD countries.

As the COVID‑19 crisis took off, all countries took steps to ensure that the schemes could be rapidly and widely deployed to provide support for firms and workers to deal with the consequences of government‑imposed restrictions on economic activity. Twenty-three OECD countries had a STW scheme in place before the crisis erupted (Table 1), while eight countries introduced new schemes in response to the crisis. All countries with pre-existing schemes rapidly adjusted them to cope with the COVID‑19 crisis.1 Countries’ measures to expand existing STW schemes fall into three broad categories:

  • Simplifying access and extending coverage. Twenty countries took measures to facilitate and expedite access to STW and boost take-up among the affected firms. Several countries where firms are required to provide an economic justification have reduced the thresholds to allow firms to claim STW (e.g. Japan, Korea, and Poland). In others, firms can invoke the health crisis as a “force majeure” by a simple declaration (e.g. Belgium, Czech Republic, France, Italy, and Spain). Germany and Norway lowered the minimum permissible reduction in working time to gain access to their STW schemes. Italy, where STW was limited to large firms and certain sectors, extended its scheme to all sectors and firms of all sizes. Countries also simplified and streamlined procedures, with widespread use of online applications and the possibility of making claims retroactively.

  • Extending coverage to non-permanent workers. Nine countries extended eligibility beyond workers in standard forms of employment to include temporary, temporary-agency and even certain categories of self-employed workers. In principle, this should reduce the risk that STW schemes reinforce labour market duality (Hijzen and Venn, 2011[1]). However, firms may have weak incentives to hold on to workers in non-standard forms of work during periods of STW, especially if the scheme imposes a direct cost on employers. This is of particular concern during the COVID‑19 crisis since the sectors most affected tend to rely heavily on non-standard forms of work and highlights the importance of additional measures to support such workers in case they lose their jobs.

  • Raising generosity. Several countries have increased the generosity of STW schemes by raising the replacement rates for workers and reducing the costs for firms. Fourteen countries increased the effective replacement rate for hours not worked. In several countries where employers were required to pay part of the wages or social-security contributions for the hours not worked these costs were reduced to zero (e.g. France, Germany, Italy). In about half of all countries, this cost was already zero before the crisis. Higher replacement rates and lower employer cost reflect the fact that in the early stage of the crisis countries gave more weight to the need to provide support for workers and businesses than to concerns for the possible disincentive effects of the measures adopted.

The new STW schemes that were introduced in response to the COVID‑19 crisis have also been designed to be used easily and quickly by firms experiencing difficulties and generally cover non-standard workers as well. In Denmark and the United Kingdom, for example, firms can submit their application online and claim support retroactively. While there is some variation across countries, the level of support for workers tends to be relatively high, ranging from 100% in Denmark to 75% in Latvia. In Greece, the support is a flat rate of 800 Euros, while in Iceland workers on reduced hours receive the standard rate for regular unemployment benefits. All new schemes, except the one in Iceland, offer support only when hours are reduced to zero, i.e. in the case of temporary layoffs. Such schemes might be easier to implement quickly and less susceptible to abuse based on the misclassification of part-time workers. However, they are also necessarily more rigid and exclude the possibility of sharing the costs of adjustment across the workforce through broad-based working time reductions (i.e. work-sharing).

A number of – mostly English-speaking – countries have introduced ad-hoc wage subsidies (WS) that can be used by firms for hours worked (like standard wage subsidies) as well as for hours not worked (like STW schemes). While these WS schemes are generally not conditional on a reduction in working hours for the employees involved, they are reserved for firms experiencing a significant decline in revenue or sales and firms can use them to continue to pay workers who are temporarily not working. Firms can typically use the subsidies to support jobs of non-standard workers or to re-hire recently laid off workers.

Australia and New Zealand introduced a lump-sum subsidy that effectively acts as a minimum salary for all employees. Qualifying employers must continue to pay as usual for hours worked or pay the level of the subsidy if this is higher. In Canada and Estonia, the subsidy is a fixed proportion of usual wages (75% and 70% respectively), regardless of the reduction in working time. In Ireland, the level of the subsidy varies with the employee’s earnings, reaching a maximum of 85% of net normal earnings for the lowest incomes. In Poland, employers are required to pay at least 50% of usual wages for workers whose job has been temporarily suspended (more for smaller reductions in hours) and are partially reimbursed by the state. The Netherlands replaced its existing STW scheme with a temporary wage subsidy whereby employers must continue to pay employees 100% of their usual wage and receive a subsidy that is proportional to the reduction in sales (90%) and not the reduction in working hours as in traditional STW schemes.

There are various reasons why these countries have opted for temporary WS schemes. First, with the exception of the Netherlands, these countries had no or limited experience with STW schemes: Australia and Estonia never had a STW scheme; Canada, Ireland, Poland and New Zealand operated STW schemes during the global financial crisis, but they were not widely used. Second, firms in most of these countries typically face relatively low layoff costs and therefore might have weak incentives to participate in STW schemes that generally involve some procedural costs and, in some cases, an explicit financial contribution by firms. Finally, WS are arguably a more flexible form of support for firms which can manage their hours freely without any reporting requirements. They also provide stronger incentives for firms to keep hours worked up and to increase them quickly when conditions improve.

Companies made massive use of job retention (JR) schemes to cut hours, or put their workers “on furlough”. About 60 million workers across the OECD have been included in the initial requests by companies for support by job retention schemes. In May 2020, companies’ requests for support from job retention schemes amounted to 66% of dependent employees in New Zealand, over 50% in France, over 40% in Italy and Switzerland, around 30% in Austria, Belgium, Germany and Portugal (Figure 1). The actual use of these schemes is considerably lower than the initial requests in some countries, corresponding to about 50 million across the OECD. This is still about ten times as much as during the global financial crisis of 2008-09 (Hijzen and Venn, 2011[1]). In Germany, for example, actual take-up was 19% in May 2020 compared with 4% at the peak during the global financial crisis, and in France actual take-up was 33% compared with just 1% during the global financial crisis (Figure 2).

Across the OECD, job retention schemes supported over 50 million jobs, ten times as many as during the global financial crisis.   

The use of JR schemes was widespread in all sectors and across all types of firms, as the government-imposed restrictions to business activity affected many firms across almost all sectors. (Figure 2). By contrast, during the global financial crisis 80% of the actual use of JR support in France and Germany was concentrated in manufacturing, even though manufacturing accounted for no more than 20% of employment at the time. This reflects the disproportionate impact of the global financial crisis on that sector as well as the greater incentives for labour hoarding in skill-intensive industries.

The use of job retention schemes during the COVID-19 crisis has been unprecedented. In Germany, take-up of short-time work was 19% in May 2020 compared with 4% at the peak of the global financial crisis and 33% in France compared with just 1% during the crisis.   

The unprecedented use of JR schemes has helped contain the employment and social fallout of the COVID‑19 crisis and avoid massive layoffs (OECD, 2020[2]). Concerns over the potential negative effects of JR schemes, which arise in ordinary times, were initially of secondary importance. In particular, the risk of devoting public resources to support jobs that employers would have retained anyway was limited because restrictions in business activity during confinement heavily reduced sales and hence financial resources in many firms across almost all sectors. In ordinary times, JR schemes can also impede the reallocation of workers to more productive firms. But this risk was also limited during the lockdown period, given the hiring freeze and the pervasive impact of government-imposed restrictions and physical‑distancing measures on all firms, independently of their pre-crisis performance.

This section provides more detailed insights on the way JR schemes operated during the early stage of the COVID‑19 crisis, with a particular emphasis on their generosity for firms and workers and the extent to which they target firms with financial difficulties and workers with low earnings. JR schemes played a significant role in reducing labour costs – and hence the number of jobs at risk of being terminated as a result of acute liquidity problems in firms -, while at the same time supporting the incomes of workers whose hours were temporarily reduced, preventing financial hardship and supporting aggregate demand.

STW schemes typically allow reducing working time at zero costs for firms, with potentially significant consequences for the number of jobs at risk of termination. WS schemes typically allow for larger reductions in labour costs than STW schemes, but this comes at a greater fiscal costs or weaker income protection for workers. Due to the greater targeting of STW subsidies to firms likely to experience financial difficulties, they are likely to be more effective in savings jobs than WS schemes.

During the early stage of the COVID‑19 crisis, most countries set to zero the cost of contractual hours which are actually not worked, allowing firms to adjust labour costs in line with the decline in working time (Figure 3). This tends to hold in countries with STW schemes as well as those with WS schemes. However, in some countries employers have continued to bear some of the cost of idle workers. In Denmark and the Netherlands, employers are required to contribute respectively 35% and 10% of regular labour costs to ensure no change in income for workers. The schemes in Estonia, Japan Portugal and Poland do not fully protect worker’s income but still require employers to pay part of the income of workers on zero hours, i.e. who are temporarily not working. However, even in these countries JRS allowed for significant adjustments of labour costs during the crisis.

When working time is not reduced to zero, WS schemes are more generous to employers than STW schemes (Panel B of Figure 3). While STW schemes relieve employers of the cost for hours not worked, they do not change the cost of hours worked. By contrast, WS schemes are designed to reduce the cost of hours worked as well. For example, in the case of a worker on the average wage experiencing a 30% reduction in hours worked, labour costs fall by 70% in Australia and New Zealand and 100% in Canada, while they decline by 30% in most STW countries. In the Netherlands, employers also receive a subsidy they can use for hours worked, but in contrast to other countries with WS schemes, the size of the subsidy is proportional to the decrease in revenue, similar in spirit to STW schemes. In this sense, the Dutch scheme can be seen as a hybrid case.2

In most countries, job retention schemes allow firms to reduce working hours at zero costs, preserving jobs and preventing a surge in unemployment.   

Simulations based on firm-level data for 14 European countries suggest that JR schemes significantly reduced the number of jobs at risk of termination as a result of liquidity problems in firms during the COVID‑19 crisis (see Box 2). By reducing labour costs, JR schemes prevented acute liquidity problems in many firms despite the sharp decline in sales. This helped ensure that workers were not laid off from their jobs or that firms did not go bankrupt. Moreover, the simulations suggest that STW schemes are likely to be more cost-effective than WS schemes. For a given fiscal cost, government support provided through STW schemes achieves a larger reduction in the number of jobs at risk of termination than that provided through WS schemes. The reason for this is that STW subsidies are proportional to the decline in business activity as measured by hours not worked and that firms with larger reductions in business activity are more likely to experience liquidity issues that prevent firms from paying wages to their workers, while the size of WS is independent of the decline in business activity (except in the Netherlands). Consequently, such schemes are more likely to support jobs that would have been preserved even in the absence of government support since firms with smaller reductions in business activity are less likely to experience acute liquidity problems.

Workers on JR support typically are much better off than workers on full-time unemployment insurance benefits, even in the case of a complete stoppage. JR support tends to be more strongly targeted to low‑wage workers, particularly in countries where spending on JR schemes is more limited. Consequently, JR not only helped to prevent job losses, but also prevented financial hardship and supported aggregate consumption by supporting the earnings of workers on reduced working time and particularly those with a low spending capacity.

JR schemes ensure a higher level of support to furloughed workers (i.e. temporarily on zero hours) than unemployment benefits (UB) in most countries (Figure 4). The difference in earnings between STW and UB recipients is even larger for workers who continue to work part-time and receive full pay for hours worked. The relatively high replacement rates offered by JR schemes have likely made the schemes attractive to workers and have helped protect workers’ living standards and support aggregate demand. The largest differences with UB can be found in countries with temporary JR schemes such as Denmark and the Netherlands, which offer full income protection to workers as well as countries with means-tested UB such as Australia, New Zealand. In other countries, often with pre-existing schemes for STW the difference between STW and UB tends to be smaller. For example, in Italy and Spain, the two systems provide similar levels of protection.

Job retention schemes provide strong income support to workers on reduced working hours, mitigating financial hardship for many workers and supporting aggregate demand. Income support provided through job retention schemes tends to be stronger than regular unemployment benefits.   

In some countries, JR schemes offer more support to workers on low earnings (Panel A of Figure 5). In five countries, the replacement rate for low-wage workers at 67% of average wage is at least 10 percentage points higher than that for average-wage workers. These differences are larger in countries with lower replacement rates at the average wage. This suggests that in countries which spend less on JR schemes, a stronger targeting at low-wage workers is necessary to prevent low-income families from running into financial difficulties. The targeting of JR support to low-wage workers is driven by the presence of caps on benefits in countries with STW (e.g. Italy, Spain, and United Kingdom). In the WS schemes of Australia and New Zealand, differences in effective replacement rates across wage levels stem from the fact that the subsidy is a lump-sum independent of usual earnings.3

Generous income support to workers on reduced working hours helps to support disposable income, preventing financial hardship in particular among low-income families. Moreover, by preserving employment, JR schemes also contribute to household welfare by strengthening job and income security. By supporting household incomes and reducing income volatility, JR schemes are likely to have played an important role in supporting aggregate consumption and alleviating the risk of the supply shock transforming itself in a demand crisis (Read et al., 2020[3])). Finally, by helping to stagger jobless claims, they have relieved pressures on public employment and social services (and “flattened the unemployment curve”).

During the confinement phase, JR schemes were mainly designed to provide immediate support to firms and workers and avert an initial surge in unemployment. As countries relax restrictions to economic activities, the design of the schemes should be adapted to enhance their targeting to jobs that are likely to return viable. Indeed, the schemes can help firms that experience a temporary shock preserve valuable job-specific human capital with potentially positive effects on productivity in the medium term. However, if the schemes end up supporting jobs that are unlikely to recover, they run the risk of slowing the reallocation of employment towards high-performance firms and sectors, hindering aggregate productivity and the economic recovery. Improving the targeting of the JR schemes requires addressing three difficult policy challenges.

The first question is how to adapt the schemes to deal with the economic aftermath of the health crisis. The main challenge is to target JR schemes more towards those jobs at risk of being terminated, but that are viable in the longer term. Indeed, it is inevitable that for some firms will not be able to recover fully or quickly from the shock and will have to resort to permanent layoffs. Jobs that have become unviable should be allowed to end and affected workers should be supported by unemployment benefits, in combination with active labour market policies to facilitate transitions towards new and viable jobs. However, discriminating between viable and unviable jobs is inherently difficult given the uncertainty facing firms and workers. As discussed in further detail below, countries can use a number of levers to enhance the targeting of the benefits towards jobs more likely to survive and provide support to workers in jobs that remain at risk. Some countries have already announced changes to the schemes in these directions – see Box 2.

The second question is when to phase out or adapt JR measures that offer generous support with few safeguards against their possible negative effects. This is a difficult question given that uncertainty remains high and the risk of second wave of the epidemic is still looming. The answer to this question is a difficult balancing act. On the one hand, restricting access to JR schemes too soon risks allowing the destruction of jobs that could still be viable and induce a surge in layoffs. On the other hand, extending easy-access JR schemes increases the chances of preserving unviable jobs, wasting valuable resources and slowing the necessary reallocation of employment towards expanding firms and sectors. In general, governments have been clear that support will remain available for as long as restrictions remain in place, but less so about their plans for extending or phasing out job retention measures beyond this initial period or the criteria that would be used to make such decisions. This creates uncertainty for firms and workers about the availability of support and increases the risk that decisions are determined by political rather than economic considerations. Making use of a clear time-table and objective criteria for making adjustments can help reduce uncertainty. For example, the United Kingdom provided a clear time-table for the phase out its temporary JR scheme.

The third question is to whom any adjustments should apply, and particularly, whether the adaptation of JR schemes should be differentiated across sectors. While in some sectors, economic activity may pick up quickly (e.g. manufacturing), others will continue to face legally imposed restrictions or longer-lasting changes in demand for their products and services (e.g. tourism). Sectors whose activity remains legally curtailed may require continued JR support in the de-confinement phase. In sectors where business can resume, JR schemes could be adjusted to avoid the risk that they support jobs that have become permanently unviable. France is currently the only country that applies more favourable conditions to sectors that remain subject to government-imposed restrictions. More specifically, since June 2020, employers in “open” sectors are required to contribute 10% of the usual cost of hours not worked or, equivalently, 15% of the gross benefit received by workers, with a further tightening foreseen in October (see Box 4).

The remainder of this section focuses on the first question of how to adapt JR schemes to the economic aftermath of the health crisis. It first discusses a number of options to enhance the targeting of the JR support towards jobs that are more likely to survive and then how a gradual shift from protecting jobs to supporting workers in jobs at risk of termination could be achieved.

Governments can reduce the risk of supporting jobs that are unviable even in the medium term by requiring employers to cover part of the cost of hours not worked and limiting the maximum duration of JR support. Requiring firms to contribute to the cost of hours not worked also provides stronger incentives for resuming regular work schedules and leaving JR support. To the extent that a faster return of business activity is socially desirable, for example because it entails significant positive demand externalities, there may be an argument for complementing STW schemes with a work resumption subsidy (discussed below). A greater emphasis on enforcing the proper use of STW support is further needed to prevent firms from claiming support for hours worked (e.g. teleworking, continued claims after the resumption of work).

Governments could require firms participating in STW schemes to cover part of the cost of hours not worked. This would reduce the attractiveness of STW for firms in general, but would strengthen incentives to use the scheme to support jobs that are more likely to re-start after the crisis and resume regular work schedules as soon as possible. To avoid reinforcing the financial difficulties of firms, employers’ participation could take the form of a delayed payment or (zero-interest) loan.4 Since 1 June 2020, in France, firms are required to pay 15% of the benefit workers receive for hours not worked. Beginning in July 2020, the United Kingdom has started to phase out its temporary Job Retention scheme and gradually increasing the cost to employers for keeping workers on furlough.

By design, wage subsidies schemes tend to reduce the cost of hours worked to employers and relieve them entirely of any cost for hours not worked. To ensure that employers bear some of the cost of hours not worked – at least for large reductions in working hours – countries could require them to pay a fraction of a workers’ usual wage regardless of hours worked with the subsidy set to cover only part of that pay. For example, New Zealand encourages – but does not legally require – employers to pay 80% of usual earnings, while the subsidy amounts to roughly 30% of the average wage. Hence, employers complying with this recommendation bear some of the cost of hours not worked when hours are reduced by more than 50%. The wage subsidy scheme operated in the Netherlands mimics STW schemes that require firms to share some of the cost of hours not worked. While workers continue to receive 100% of their earnings, employers receive a varying subsidy, which is at most 90% of the wage. This may induce some employers to request support only for workers whose jobs are viable in the longer term.

Limits to the duration of STW and WS help reduce the risk of supporting firms and jobs that are no longer viable even in the longer term. Indeed, evidence from Switzerland during the global financial crisis of 2008‑09 indicates firms tended to leave STW as soon as it became economically viable to do so, while those firms which did use the scheme up to the maximum duration tended to layoff some workers eventually (Kopp and Siegenthaler, 2019[6]). Maximum limits signal that support is temporary and hence cannot be a permanent solution to problems and reduce the risk of supporting permanently unviable jobs.

While limits to the duration have a role to play they should not be set in stone and may need to adjust according to the health and economic situation. If the economic crisis lasts longer and affects a larger share of firms than initially expected, extending the revised schemes might be essential to prevent a sudden surge in unemployment and to preserve jobs that might become viable as the general economic climate improves. Some countries have recently announced extensions to the maximum duration of support (e.g. Denmark, United Kingdom). In other countries, where the maximum duration of job retention support is relatively long, it may be appropriate to shorten the maximum duration of job retention subsidies for new applications. Semi-automatic rules could be used to strengthen the timeliness, predictability and economic justification of any such adjustments as is the case of for regular unemployment benefits in some countries (e.g. Canada, United States).

Reductions in working time through STW schemes do not generate revenues for firms and may entail some costs. Firms therefore have strong incentives to increase hours as soon as it becomes profitable to do so. However, it might be more socially desirable to subsidise firms to increase hours even when this is not yet profitable, than to subsidise them to remain idle. The resumption of yet-unprofitable activity might contribute to stimulate the economy through increased demand from business-to-business linkages or the increased income for workers. WS schemes do provide incentives to firms to start production earlier because firms can use the subsidies to reduce the cost of hours worked. To provide the same incentives, STW schemes could be complemented with a temporary wage subsidy for workers resuming normal hours. The subsidy could be a percentage of gross earnings up to a ceiling or a temporary reduction in social security contributions. The downside of the subsidy is that it would also provide support for firms that would increase working hours anyway, generating some potential waste of resources. While the benefits arising from the stimulus aspect of the subsidy are more likely to outweigh the costs in the context of a severe and prolonged economic slowdown, these measures are likely to require a significant amount of public resources. Spain has recently reintroduced the payment of social security contributions for hours not worked in firms using its STW scheme, but in an attempt to encourage the resumption of working hours, lower rates are applied to firms with some active workers than to firms with no activity.

Concerns about potential abuse may become more important as firms continue to claim short-time work subsidies for hours not worked even after workers have returned to work and resumed their normal working hours. These concerns add to pre-existing ones about companies that require employees to continue to work from home while also claiming short-time work subsidies for these working hours. Such abuses increase the fiscal costs of short-time work. To tackle abuse, governments can make greater use of labour inspectors to verify whether actual working practices are consistent with claims for JR support. Rather than conducting random checks, it may be possible to conduct more targeted site visits. Statistical profiling tools could be used to identify firm types that are more likely to make incorrect or false claims. Integrated administrative systems could be developed to identify suspicious cases that link the claiming history of firms with information on business activity (in terms of sales or working hours) from tax or social-security records. Designated hotlines or notification procedures could be set up to solicit anonymous complaints by workers or their representatives. Such complaints are more likely when benefits are relatively limited and workers have strong incentives to resume normal working hours.

Since wage subsidy schemes are explicitly designed to reduce the costs for firms of hours worked, abuse comes in a different form. The main concern is that firms may over-report the decline in sales that is applied to determine eligibility (e.g. backdating or postponing bills).

While the main aim of JR schemes is to preserve jobs, they will not be successful in all cases as some jobs may have become permanently unviable. Some workers in subsidised jobs may therefore have limited career prospects and remain at risk of losing their job eventually. This suggests a shift may be required from protecting jobs to supporting workers in jobs at risk of termination. This may involve rebalancing between STW and UB, making public employment services available to persons in subsidised jobs and encouraging training for workers on reduced working hours.

In most countries, short-time benefits for hours not worked exceeded regular unemployment benefits during the confinement phase (Figure 4). The difference in terms of total incomes can be even larger for workers who combine full pay for hours worked with short-time work benefits for hours not worked. This clearly increases the attractiveness of short-time work in comparison to (full) unemployment and the willingness of workers, including those not directly at risk of being laid off, to accept a reduction in working hours as part of a STW scheme. As concerns about the cost effectiveness of support become more important, there may be a case for reducing the gap between short-time work benefits and regular unemployment benefits, notably in countries with particularly generous STW benefits. Alternatively, STW benefits could be allowed to decline over the spell. Since in most countries the level of support for the unemployed tends to decline over the spell already, this would at least prevent the gap between the two from increasing.

These changes would help contain the overall cost of STW schemes, and might improve the targeting of short-time work schemes to jobs at risk of being destroyed. Lower subsidies might also increase incentives for workers to resume normal working hours or actively look for another job altogether. Even with a smaller difference when compared to unemployment benefits, STW is likely to remain attractive because it preserves the employment contract and the non-wage benefits linked to it (fringe benefits, social security, including access to health insurance in some countries).France has already announced that from October 2020, the gross replacement rate for workers will decline from 70% to 60% – see Box 4.

The mobility of workers from subsidised to unsubsidised jobs can be promoted by requiring or encouraging workers on short-time work to register with the public employment services and benefit from their support (e.g. job-search assistance, career guidance and training) (OECD, forthcoming[8]). OECD analysis shows that early interventions – including those before job displacement takes place – can be very effective in promoting smooth job transitions (OECD, 2018[9]). However, only a few countries require workers on short-time work to register with the public employment services and to engage in active job search while on short-time work. Countries may not see this as a priority since many of the workers on reduced working hours will stay with their current firm even after the crisis. There may even be a risk that imposing mandatory job-search requirements might push some workers whose job is at risk only temporarily into lower quality employment. Job search requirements have traditionally been more common in countries where short-time work subsidies are paid directly to workers since this establishes a contact point between workers and the providers of employment services, (Hijzen and Venn, 2011[1]). Irrespective of whether payments are made to the worker or to the firm, countries could encourage workers to register with the public employment services on a voluntary basis to allow them to benefit from their services and support their career progression (in their current firm or a different one).

Participation in training while on reduced working hours can help workers improve the viability of their current job or improve the prospect of finding a new job. Several countries encourage training during short-time work by providing financial incentives to firms or workers (e.g. France, Germany). In few countries participation in training is a requirement for receiving short-time work subsidies (e.g. Hungary, Netherlands). In the Netherlands, since June 2020 employers applying for JR support have to declare that they actively encourage training, while the government has taken additional measures to make on‑line training and development courses freely available. The main challenge is to organise training in such a way that it can be combined with part-time work and irregular work schedules. This is easier when training courses are targeted at individuals rather than groups, delivered in a flexible manner through online teaching tools and their duration is relatively short (OECD, forthcoming[10]). In the present context, training courses that promote the return to work may be particularly valuable as would training courses to promote the mobility of workers to jobs in expanding firms and industries (e.g. online services).

References

[1] Hijzen, A. and D. Venn (2011), “The Role of Short-Time Work Schemes during the 2008-09 Recession”, OECD Social, Employment and Migration Working Papers, No. 115, OECD Publishing, Paris, https://dx.doi.org/10.1787/5kgkd0bbwvxp-en.

[4] Hijzen and Salvatori (forthcoming), “Job retention schemes during the COVID-19 lockdown and beyond: An OECD perspective”, OECD Social, Employment and Migration Working Papers, OECD Publishing, Paris.

[6] Kopp, D. and M. Siegenthaler (2019), “Short-Time Work and Unemployment in and after the Great Recession”, KOF Working Papers, No. 462, ETH, Zurich, http://dx.doi.org/10.3929/ETHZ-B-000359533.

[7] Müller, T. and T. Schulten (2020), Ensuring fair Short-Time Work - a European overview, European Trade Union Institute, Brussels.

[5] OECD (2020), OECD Economic Outlook, Volume 2020 Issue 1: Preliminary version, OECD Publishing, Paris, https://dx.doi.org/10.1787/0d1d1e2e-en.

[2] OECD (2020), OECD Employment Outlook 2020: Worker Security and the COVID-19 Crisis, OECD Publishing, Paris, https://dx.doi.org/10.1787/1686c758-en.

[9] OECD (2018), “Back to work: Lessons from nine country case studies of policies to assist displaced workers”, in OECD Employment Outlook 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/empl_outlook-2018-8-en.

[8] OECD (forthcoming), “Mitigating the rise in (long-term) unemployment: what role for active labour market policies and public employment services?”, OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://www.oecd.org/coronavirus/en/policy-responses.

[10] OECD (forthcoming), “The potential of online learning: Early lessons from the COVID-19 crisis”, OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://www.oecd.org/coronavirus/en/policy-responses.

[3] Read, B. et al. (2020), The idiosyncratic impact of an aggregate shock: the distributional consequences of COVID-19, The IFS, http://dx.doi.org/10.1920/wp.ifs.2020.1520.

Contact

Stefano SCARPETTA (✉ stefano.scarpetta@oecd.org)

Mark PEARSON (✉ mark.pearson@oecd.org)

Alexander HIJZEN (✉ alexander.hijzen@oecd.org)

Andrea SALVATORI (✉ andrea.salvatori@oecd.org)

Notes

← 1. In some countries, such as Denmark, these extensions build on a tripartite agreement between the government, trade unions and employers.

← 2. The Slovak Republic also modified its existing STW schemes complementing it with a wage subsidy to firms experiencing a decline in activity whose amount varies with the magnitude of the reduction in sales.

← 3. In Australia, the JobKeeper subsidy provides a level of income to the very low-paid, which can be higher than what they normally get from work (40% of average wages).

← 4. This would be similar to experience-rating employer social‑security contributions, i.e. making future contributions dependent on firms’ use of short-time work subsidies during the crisis, but would be simpler to implement.

Disclaimer

This paper is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD member countries.

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

© OECD 2020

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at http://www.oecd.org/termsandconditions.