DISCUSSION Baleer, Gehrke, Lechthaler, Merkl 2014: Does Short-Time Work Save Jobs? A Business Cycle Analysis

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1 DISCUSSION Baleer, Gehrke, Lechthaler, Merkl 2014: Does Short-Time Work Save Jobs? A Business Cycle Analysis Martin Scheffel 1 1 University of Cologne Eltville, June 12, 2014 Scheffel / DISCUSSION: Balleer et al (2014) 1/10

2 Motivation STW as explanation for the labor market performance during the Great Recession? STW encourages to adjust labor input along the intensive margin instead of the extensive margin how important was the discretionary component of STW for the German labor market performance during the Great Recession? Scheffel / DISCUSSION: Balleer et al (2014) 2/10

STW encourages to adjust labor input along the intensive margin instead of the extensive

3 Motivation STW as explanation for the labor market performance during the Great Recession? STW encourages to adjust labor input along the intensive margin instead of the extensive margin how important was the discretionary component of STW for the German labor market performance during the Great Recession? Scheffel / DISCUSSION: Balleer et al (2014) 2/10

4 Purpose/Result disentangle effects of rule-based and discretionary STW components on output and unemployment STW can be a cost efficient automatic stabilizer but discretionary changes in STW are inefficient Scheffel / DISCUSSION: Balleer et al (2014) 3/10

be a cost efficient automatic stabilizer but discretionary

5 Purpose/Result disentangle effects of rule-based and discretionary STW components on output and unemployment STW can be a cost efficient automatic stabilizer but discretionary changes in STW are inefficient Scheffel / DISCUSSION: Balleer et al (2014) 3/10

6 Approach step 1: estimate (semi-)elasticity of the rule-based component of STW with respect to output step 2: estimate effects of discretionary STW policy on unemployment step 3: develop model to rationalize ineffectiveness of discretionary policy and conduct simulation analysis Scheffel / DISCUSSION: Balleer et al (2014) 4/10

unemployment step 3: develop model to rationalize ineffectiveness of

7 Ineffectiveness of Discretionary STW (1) firing threshold ǫ t > ν f t ν f t = a t w t c f + βe[j t+1]+f C(K(ν f t)) 1 K(ν f t) short-time work threshold ν f t > ǫ t > ν k t ν k t = a t w t c f D t +βej t+1 Scheffel / DISCUSSION: Balleer et al (2014) 5/10

8 Ineffectiveness of Discretionary STW (2) one-period change in D t : continuation value and wage are unaffected (collective bargaining) multi-period change in D t :economic meaning of unit increase in D t and autocorrelation of 0.5? does a multi-period adjustment of D t reflect an extension of the eligibility period of STW? surprising result (i.i.d. cost shocks and low probability of ending up in STW)? Scheffel / DISCUSSION: Balleer et al (2014) 6/10

of 0.5? does a multi-period adjustment of D t reflect an extension of the eligibility period of STW?

9 Ineffectiveness of Discretionary STW (2) one-period change in D t : continuation value and wage are unaffected (collective bargaining) multi-period change in D t :economic meaning of unit increase in D t and autocorrelation of 0.5? does a multi-period adjustment of D t reflect an extension of the eligibility period of STW? surprising result (i.i.d. cost shocks and low probability of ending up in STW)? Scheffel / DISCUSSION: Balleer et al (2014) 6/10

10 Ineffectiveness of Discretionary STW (2) one-period change in D t : continuation value and wage are unaffected (collective bargaining) multi-period change in D t :economic meaning of unit increase in D t and autocorrelation of 0.5? does a multi-period adjustment of D t reflect an extension of the eligibility period of STW? surprising result (i.i.d. cost shocks and low probability of ending up in STW)? Scheffel / DISCUSSION: Balleer et al (2014) 6/10

11 Effectiveness of Rule-Based STW automatic stabilization mechanism share of workers on STW: countercyclical average hours reduction of workers on STW: procyclical increase in firing rate: 2.4 (STW) and 2.2 (no STW) sufficient to generate substantially different volatility in unemployment rate? effect of business cycle indexed D t? Scheffel / DISCUSSION: Balleer et al (2014) 7/10

12 Effectiveness of Rule-Based STW automatic stabilization mechanism share of workers on STW: countercyclical average hours reduction of workers on STW: procyclical increase in firing rate: 2.4 (STW) and 2.2 (no STW) sufficient to generate substantially different volatility in unemployment rate? effect of business cycle indexed D t? Scheffel / DISCUSSION: Balleer et al (2014) 7/10

13 Bargaining collective bargaining introduces inflexibility that is partly reduced by STW more flexible labor markets (Nash-Bargaining over wages): effect of STW is reduced even more flexible labor markets (Nash-Bargaining over wages and separation rate): effect of STW is zero? Scheffel / DISCUSSION: Balleer et al (2014) 8/10

reduced even more flexible labor markets (Nash-Bargaining over wages and

14 Calibration fixed cost of production to match volatility of unemployment volatility is not targeted logistic distribution for explicit threshold values analytical results for impulse response model structure leads to poly-log and zeta functions disperse production cost distribution: σ(ǫ) π calibrated threshold substantially higher than actual productivity (normalized to unity)? Scheffel / DISCUSSION: Balleer et al (2014) 9/10

leads to poly-log and zeta functions disperse production cost distribution: σ(ǫ) π calibrated threshold

15 Minor Points balanced budget in each period flexibility and resilience of labor market and effectiveness of short-time work (US vs. Germany) why did Italy under-perform? what about policy recommendations for Spain? STW as measure to avoid loss of job specific skills: dynamic aspects of STW are missing Scheffel / DISCUSSION: Balleer et al (2014) 10/10

what about policy recommendations for Spain?

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