Short-Time work as a response to the COVID-19 Crisis – A study on Swedish micro, small, and medium-sized enterprises (MSME) using firm-level data

Short-time work (STW) is a widely used policy instrument that assists firms in times of crisis. It has been used in many OECD (Organisation for Economic Co-operation and Development) countries in the 2007–2009 Great Recession and recently as a response to the financial impacts of the COVID-19 pandemic. It allows employees to reduce their working hours with a slight salary reduction. This makes it possible for firms not to lay off workers during economic downshifts. However, there are few evaluation studies of the effectiveness of STW to meet the economic shock due to COVID-19. The present study contributes to filling this research gap by presenting the estimated effects of STW on several important outcome variables. Swedish firm-level data are used to evaluate the impact of the subsidy using different matching methods. The results suggest that firms that received STW support had fewer employees than those that did not receive STW support. This reduction in working hours was, on average, the equivalent of 0.6 full-time employees compared to firms that did not receive STW. Nevertheless, the results imply that the companies that received STW are more productive, as measured by turnover per employee, than those that did not. The main policy recommendations are that public funds should be spent carefully and that support initiatives such as STW must be evaluated.