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Mr. Shekhar Aiyar and Mai Dao
Kurzarbeit (KA), Germany’s short-time work program, is widely credited with saving jobs and supporting domestic demand during the COVID-19 recession. We quantify the impact by exploiting state-level variation in exposure to the pandemic shock and KA take-up. We construct a shift-share measure of the labor demand shock and instrument KA take-up using the pre-existing, state-specific share of workers eligible for KA. We find, first, that KA was crucial in mitigating unemployment: absent its expansion the unemployment rate would have increased by an additional 3 pp on average at the trough of the recession. Second, KA also bolstered domestic demand: the contraction in consumption could have been 2 to 3 times larger absent the program. Finally, we provide preliminary evidence on the sensitivity of the medium-run reallocation of resources to the prevalence of jobretention schemes during the Global Financial Crisis.
Mr. Shekhar Aiyar and Mai Dao

across advanced economies were being supported by some form of job-retention scheme, a tenfold increase from the GFC ( OECD, 2020 ). Like Germany, several countries loosened the parameters of existing programs to allow easier access and more generous benefits during the worst of the crisis, while others, such as Australia and Denmark, introduced entirely new schemes. European countries led the trend; by May 2020, firms’ applications for job retention support amounted to more than 50% of all dependent employees in France, over 40% in Italy and Switzerland, and about 30

Mr. Sakai Ando, Mr. Ravi Balakrishnan, Bertrand Gruss, Mr. Jean-Jacques Hallaert, La-Bhus Fah Jirasavetakul, Koralai Kirabaeva, Nir Klein, Ana Lariau, Lucy Qian Liu, Mr. Davide Malacrino, Mr. Haonan Qu, and Alexandra Solovyeva
In 2020, the COVID-19 pandemic caused by far the largest shock to European economies since World War II. Yet, astonishingly, the EU unemployment rate had already declined to its pre-crisis level by 2021Q3, and in some countries the labor force participation rate is at a record high. This paper documents that the widespread use of job retention schemes has played an essential role in mitigating the pandemic’s impact on labor markets and thereby facilitating the restart of European economies after the initial lockdowns.
Mr. Sakai Ando, Mr. Ravi Balakrishnan, Bertrand Gruss, Mr. Jean-Jacques Hallaert, La-Bhus Fah Jirasavetakul, Koralai Kirabaeva, Nir Klein, Ana Lariau, Lucy Qian Liu, Mr. Davide Malacrino, Mr. Haonan Qu, and Alexandra Solovyeva

Research; Eurostat; and IMF staff calculations. Note: Gray-shaded areas correspond to CEPR-based recessions for euro area business cycles. The unemployment spike was largely driven by temporarily laid off workers. In 2020Q2, workers that were temporarily laid off accounted for more than 70 percent of the new unemployed in the United States, while Europe’s recourse to job retention schemes substantially limited the increase in the unemployment rate. The number of temporary layoffs started falling in 2020Q3, similar to the decline in the use of STW schemes across