Data and Code for: Should We Insure Workers or Jobs During Recessions ?

What is the most efficient way to respond to recessions in the labor market? To this question, policymakers on both sides of the pond gave two diametrically opposed answers during the recent crisis. In the US, the focus was on insuring workers, by aggressively increasing the generosity of unemployment insurance (UI). In Europe, to the contrary, policies were concentrated on saving job matches, with the massive use of labor hoarding subsidies through short-time work (STW) programs, on which so little is actually known. In this article, we show that far from being substitutes, these policies exhibit strong complementarities. They provide insurance to different types of workers, and against different types of shocks. Short-time-work can be an effective way to reduce socially costly layoffs against large temporary shocks but is less effective against more persistent shocks that require reallocation across firms and sectors. Overall, we conclude that short-time-work is an important and useful addition to the labor market policy-toolkit during recessions, which should be used alongside unemployment insurance.