Short-Time Work: The Ultimate Flexicurity Tool or Just a Springboard to Unemployment?

This paper investigates the employment effect of a short-time work program in the Netherlands within the economic crisis. In this country, short-time work was introduced as a special arrangement with the aim of allowing companies to mitigate the effect of lower product demand due to the crisis by reducing unilaterally and temporarily the working hours of some highly-specialized workers.

 Contrary to previous studies that investigate the effect of short-time work programs at the company level, this study investigates this effect at the individual level of the worker while controlling for company effects. Specifically, we study whether the risk of becoming unemployed differs between participants and  non-participants of the program. We use 2 control groups to identify the effect of participation to the program: non-participants from companies that used the program and non-participants from companies that did not use the program.

 Moreover, we investigate how short-time work relates to other forms of flexible employment that are used by the company. Therefore, we study whether the risk of becoming unemployed for participants differs according to the share of flexible contracts in the company. For this purpose, we utilize unique register data from Statistics Netherlands (CBS). This data allow us to distinguish between individual and company effects as information on the participation of the company in the program and on the financial situation of the company is also available.

 The results show that the risk for becoming unemployed is lower for participants of the program compared to non-participants that were employed in non-participant companies but higher that non-participants that were employed in participant companies. Taken together, these results mean that in the Netherlands, although short-time work reduced the risk of unemployment, employers used the program to protect more their workers that did not participate in it. When taking into account the share of flexible contracts in the company, results show that the difference in the risk of unemployment between participants and non-participants from companies that used the program only holds in companies that have a medium or high share of flexible contracts. This indicates that companies with a low share of flexible contracts used short-time work as an alternative to these flexible contracts, while for companies with a  medium or high-share of flexible contracts, short-time work was treated as an additional form of flexible contract.