Experience Rating in Short-Time Work

Short-time work (STW) has been a key labour market policy response to both the Great Recession and the COVID-19 crisis, subsidising temporary reductions in working hours to prevent layoffs. However, by funding reduced working time, STW inherently incentivises excessive take-up in the absence of financial incentives. This paper examines two Belgian STW system reforms — in 2005 and 2012 — that introduced taxes for firms based on their employees’ STW intensity to mitigate distortions in working hours, covering about 15% of firms using STW. Leveraging employer–employee longitudinal data and bunching designs, the author of the paper presented in this ZEW Research Seminar provides novel evidence that both reforms significantly reduced STW intensity per worker, with the strongest effects observed among higher-wage jobs. Additionally, the author identifies short-lived yet notable firm-level spillover effects: following the reform, firms adjusted their STW usage by distributing reductions in working hours more evenly across employees. These behavioural responses generated fiscal savings of approximately 5% per euro spent on STW.