New Report: New Zealand should move to short-time work model to reduce economic impact of Covid-19

Media release
24 March, 2020

Wellington, 24 March 2020 – The New Zealand Initiative says the Government must change its approach towards wage subsidies to avoid a mass lay-off of jobs and the potential destruction of many companies.

In a new paper called Short-time work to maintain employment, New Zealand could preserve an extra 3-4% of jobs – even during the harshest economic impact of the Covid-19 shutdowns – by adopting a successful European policy tested during the GFC.

With a recession now looming in New Zealand, the Government has rightly announced an extra $9 billion in wage subsidies for companies, along with other emergency measures.

Short-time work to maintain employment proposes a superior policy option of short-time work (STW) to better support employment and business flexibility.

Author David Law outlines why an STW scheme is a better idea because it provides wage subsidies to firms, under certain conditions, to reduce their employees’ working time rather than laying them off. The Government would then pay allowances to affected workers and partially compensate them for any wage loss.
“Short-time work programmes are sharper tools than the wage subsidies introduced so far,” Dr Law said.
“For example, in Germany during the height of the Global Financial Crisis, 4-5% percent of the workforce was covered with an average working time reduction of 28%. Nevertheless, the evidence suggests STW can be highly successful at reducing job loss,” he added.
Larger firms are particularly likely to find the STW scheme useful. For example, a large hotel with 200 employees which is now running at 20% occupancy or lower. Under this scheme, the hotel could reduce everyone’s working hours to 20% and let the Government compensate them for a share of the rest.
Dr Law said his paper also shows how the STW scheme actually becomes more efficient as the severity of an economic crises rises. He suggests it could help preserve 0.8 jobs for every employee participating in the scheme.
“If New Zealand could enact short-time work as effectively as Germany – along with similar coverage – perhaps an additional 3% of employment would be saved,” Dr Law said.

Read more:
Short-time work to maintain employment is available here.


David Law is available for comment. To schedule an interview, please contact:

Linda Heerink, Communications Officer
P: 021 172 8036

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