Short term work schemes, also known as short-time compensation or work-sharing programs, are government or employer-supported initiatives that allow companies facing temporary economic downturns to reduce employees' working hours instead of resorting to layoffs. These schemes are a crucial component of [Labor Market Policy], aiming to preserve employment relationships and mitigate the impact of economic shocks on the workforce and overall economy. Short term work schemes typically involve the state providing wage subsidies for the hours not worked, ensuring that employees receive a substantial portion of their regular income despite reduced hours. This approach helps maintain a skilled workforce and facilitates a quicker recovery when economic conditions improve.
History and Origin
The concept of short term work schemes has roots stretching back over a century. One of the most recognized early implementations is Germany's "Kurzarbeit" (short-time work), which was first introduced on May 25, 1910, to address a downturn in the potash mining industry.28, 29 It became more formally established in 1924 in response to the Weimar Republic's first economic crisis. The scheme continued to evolve, notably playing a significant role in stabilizing Germany's [labor market] during the 2008-2009 global financial crisis, allowing the country to avoid a substantial rise in joblessness.24, 25, 26, 27 During the COVID-19 pandemic, nearly all Organisation for Economic Co-operation and Development (OECD) countries operated some form of short-time work scheme, with many adapting pre-existing programs or introducing new ones to provide timely and broad-based support to firms and workers.22, 23 The widespread adoption and adaptation of these schemes underscore their perceived effectiveness as a counter-cyclical [fiscal policy] tool.
Key Takeaways
- Short term work schemes allow employers to reduce employee hours instead of implementing [layoffs] during economic downturns.
- These programs typically involve government subsidies that compensate workers for a portion of their lost wages due to reduced hours.
- The primary goal is to preserve employment relationships, retain skilled [human capital], and facilitate a faster [economic recovery].
- Such schemes serve as a vital component of a nation's [social safety net], reducing reliance on traditional [unemployment benefits].
- While effective in mitigating immediate job losses, concerns exist regarding potential labor market inefficiencies if used excessively or in response to structural rather than temporary shocks.
Interpreting Short Term Work Schemes
Short term work schemes are interpreted primarily as a mechanism for "labor hoarding," where companies retain their [workforce] during periods of low demand, anticipating a future rebound. By reducing working hours across the board rather than cutting specific jobs, businesses can avoid the costs associated with layoffs, such as severance pay, and the later expenses of recruiting and training new employees. For the individual, these schemes mean a reduction in working hours and income, but they retain their job, benefits, and connection to the employer, offering greater stability than full unemployment. The success of a short term work scheme is often measured by its ability to prevent a surge in the [unemployment rate] during a crisis and to contribute to a quicker resumption of normal economic activity.
Hypothetical Example
Imagine "TechSolutions Inc.," a software development firm, experiences a sudden 40% drop in new client projects due to an unexpected [economic recession]. Rather than laying off 40% of its developers, TechSolutions Inc. opts to enroll in a government-backed short term work scheme. Under the approved plan, all 100 employees reduce their working hours by 40%.
The government scheme covers 60% of the lost wages for the hours not worked. So, if an employee earned $1,000 per week for 40 hours, their work is now reduced to 24 hours (a 40% reduction). They still earn $600 from TechSolutions Inc. for the hours worked. For the 16 hours not worked (which would have meant $400 in lost wages), the government provides 60% of that, or $240. The employee's total weekly income becomes $600 (from TechSolutions) + $240 (from the government) = $840. This allows TechSolutions to retain its entire skilled [workforce], and employees avoid total job loss, bridging the gap until client projects resume.
Practical Applications
Short term work schemes are widely applied as a crisis management tool to stabilize [labor market]s during severe economic disruptions. They are typically implemented by national governments as part of broader [economic policy] responses. For instance, Germany's Kurzarbeit program was extensively used during the 2008-2009 financial crisis and again during the COVID-19 pandemic to cushion the economic blow.19, 20, 21 According to the OECD, virtually all member countries deployed such schemes during the COVID-19 crisis, collectively covering about one in five jobs at the peak of the crisis in April/May 2020.17, 18 The U.S. also utilizes similar programs, known as "Shared Work" or "Short-Time Compensation," which allow employers to reduce hours and wages for groups of employees, who then receive a portion of [unemployment benefits] to compensate for lost earnings.14, 15, 16 This mechanism not only safeguards jobs but also helps companies retain their institutional knowledge and specialized skills, making them better positioned for the subsequent [economic recovery].11, 12, 13
Limitations and Criticisms
While beneficial for job retention, short term work schemes are not without limitations. A primary concern is that they might delay necessary [labor market] adjustments or hinder the reallocation of workers to more productive sectors if the underlying economic shock is structural rather than temporary.7, 8, 9, 10 Critics suggest that these schemes can inadvertently prop up "zombie firms" – companies that might not be viable in the long run without continued [government subsidies]. A6dditionally, the effectiveness of short term work schemes can depend on their design; for example, if they are too generous or prolonged, they could lead to inefficiencies, potentially distorting the [business cycles]. T4, 5here is also a risk that such programs disproportionately benefit permanent employees, potentially limiting labor market access for temporary workers or freelancers who may not qualify for the payments. F2, 3urthermore, administrative burden and a lack of awareness can limit their utilization, particularly in countries where they are less established.
1## Short term work schemes vs. Temporary employment
Short term work schemes and [temporary employment] both relate to non-standard work arrangements but serve fundamentally different purposes within the [labor market].
| Feature | Short Term Work Schemes | Temporary Employment |
|---|---|---|
| Primary Goal | Job retention during temporary downturns, avoiding layoffs. | Flexibility for employers, project-based work, or entry-level roles. |
| Employment Status | Existing, usually permanent, employees with reduced hours. | New, fixed-term contracts or agency placements for specific durations. |
| Government Role | Direct wage subsidies to supplement reduced income. | Limited direct subsidies; focus on standard labor regulations. |
| Worker Benefit | Retains job, benefits, and connection to employer. | Gains work experience, income for a specific period, may lead to permanent roles. |
| Context of Use | Economic crises, natural disasters, industry-specific shocks. | Seasonal demand, project work, skill gaps, or probationary periods. |
The key distinction lies in the employment relationship: short term work schemes preserve an existing relationship, whereas temporary employment creates a new, time-limited one. While both can influence the [employment rate], short term work schemes are a direct intervention to prevent unemployment spikes among existing [workforce]s, aiming for long-term stability by maintaining companies' core operations and human capital.
FAQs
What is the main objective of short term work schemes?
The main objective of short term work schemes is to prevent mass [layoffs] during periods of temporary economic difficulty by allowing companies to reduce working hours instead of eliminating jobs. This helps businesses retain their skilled employees and facilitates a quicker [economic recovery].
Who typically funds short term work schemes?
Short term work schemes are typically funded by the government, often through existing [unemployment benefits] systems or dedicated emergency funds. The state provides subsidies to employees for the hours they do not work, while employers continue to pay for the hours worked.
How do short term work schemes differ from unemployment benefits?
Unlike traditional [unemployment benefits], which support individuals who have lost their jobs, short term work schemes aim to keep workers employed by subsidizing reduced working hours. This allows employees to retain their jobs and some income, avoiding full unemployment and its associated hardships.
Can all companies use short term work schemes?
Eligibility for short term work schemes varies by country and specific program design. Generally, companies must demonstrate a significant, temporary reduction in business activity due to external factors, rather than structural issues. Requirements often include a minimum percentage of the [workforce] affected and adherence to benefit provision rules.
Do short term work schemes always lead to better outcomes?
While often effective in mitigating immediate job losses during crises, the long-term effectiveness of short term work schemes can be debated. Some economists suggest that if used for prolonged periods or in response to structural economic changes, they might delay necessary [labor market] adjustments and hinder the reallocation of workers to more productive areas.