Heterogeneous Layoff Effects of the US Short-Time Compensation Program

Abstract

The Short-Time Compensation (STC) program enables US firms to reduce work hours via pro-rated Unemployment Insurance (UI) benefits, rather than relying on layoffs as a cost-cutting tool. Despite the program's potential to preclude skill loss and rehiring/retraining costs, firms' participation rates are still very low in response to economic downturns. Using firm-level UI administrative data and semi-parametric methods, we show why by illustrating which type of firms benefit from the program and which do not. A key finding is that cyclically sensitive firms have about 14% lower layoff rates when they use STC, but we find no difference for more cyclically stable firms.