Field: Ramvillkor, infrastruktur och kompetensförsörjning
The employment effects of short-time work during the pandemic year 2020
In this report we evaluate the effects of short-time work on aggregate employment in 2020. Based on panel data methods, we use differences in levels and timing of take-up rates across local labor markets to identify the employment effects of short-time work.
Short-time work allowance was the single largest financial support measure for Swedish companies affected by the corona pandemic. In 2020 and 2021, over 40 billion SEK were distributed to over 75 000 companies, corresponding to 0,75 percent of Swedish annual GDP. Under this job retention scheme, employers could reduce labor costs by reducing employees’ working hours. At the same time, employees maintained most of their usual salary.
Our main results are summarized as follows:
- The overall employment effect was positive. The quantitative employment effects of short-time work in 2020 is associated with uncertainty, but our results clearly show that the overall effect was positive. In the absence of short-time work, it is likely that an additional 40 000 individuals would have been non-employed by the end of 2020.
- The effects were positive during the economic downturn, but negative during the recovery. In line with results from previous international evaluations of short-time work pertaining to the financial crisis of 2008-09, we find that the employment effects are contingent on the overall economic development. Our results indicates that the regional employment effects were positive during economic downturns but negative during economic recoveries. For Sweden as a whole, this implies that the positive effects stem from the use of short-time work during the rapid and broad economic downturn in the early phase of the pandemic. During the economic recovery that followed in the second half of 2020, the employment effects were likely negative.
- The support scheme could potentially be more economically efficient. The support scheme is associated with deadweight costs. Our results indicate that 100 employees in short-time work on average increase overall employment by 10 individuals – a deadweight loss, in relation to the short-term employment effects, of 90 percent. Our estimates indicate that the gross cost per job saved amounts to 0,66 million SEK. If short-time work to a larger extent had been used only during the economic downturn in the early phase of the pandemic, this cost would, according to our estimates, have been lower.
Based on our results and previous research, our main policy recommendation is that short-time work should primarily be used during the downturn phase of an economic crisis. Our conclusion is not that it was necessarily wrong to provide longer periods of economic support to Swedish firms during the pandemic. But short-time work allowance does not appear to be an effective support scheme during periods of economic recovery – at least in terms of employment effects. It should however be noted that there might be positive effects associated with short-time work that are not investigated in this report – in particular, the value of potentially preserving valuable employee-employer matches.