The Role of Short-Time Compensation
One response to the Great Recession of 2008–2009 in several economies of the Organisation of Economic Co-operation and Development (OECD) was increased reliance on short-time compensation (STC) and other work-sharing arrangements that temporarily reduce weekly hours to ease labor market dislocations and to avoid the personal and economic costs of elevated levels of long-term unemployment. Short-time compensation has been credited with helping to stabilize employment in the face of sharp reductions in real gross domestic product (GDP). The research conducted by Burda and Hunt (2011) and Boeri and Bruecker (2011) concludes that the STC program in Germany (Kurzarbeit) was a major contributor in stabilizing German employment in 2009 and 2010.
As labor markets in the United States recover from the Great Recession, it is appropriate to assess the performance of the economy during this period and consider ways of structuring labor market institutions to lessen the economic hardships of future recessions. Not only did U.S. product markets deteriorate, but labor markets also experienced sharp decreases in employment, steep increases in unemployment, and record high levels of long-term unemployment. Given the severity of labor market conditions since 2007, this chapter examines the recent performance of STC in states with such programs and assesses their impact on employment. The chapter begins with an introduction to STC and a description of some of the important features of the program, and then reviews the performance of STC in the United States for the