Hours vs employment in response to demand shocks

Aggregate labor demand shocks temporarily increase or decrease the demand for goods and services. From a labor market perspective, the negative demand shock of the Great Recession necessitated speedy revisions of required hours and employment to counter costly productivity repercussions. The Great Recession led to significant growth in part-time and short-time jobs in the UK and the EU, which reduced hours below workers' preferences, acting as a form of underemployment and leading to revisions of traditional unemployment rates. Governments' main response to the negative demand shock of the Covid-19 pandemic was to protect jobs and (high proportions of) pre-Covid hourly earnings of employees who were forced to work shorter hours or experienced business lockdowns. Policymakers should note that short-time work schemes, alongside furlough and wage subsidy schemes, preserved worker-employer relationships and production post-pandemic, while significant increases in unemployment insurance helped the unemployed.