This study analyzes the mechanisms by which short-time work (STW) schemes affect firm’s employment adjustments, using establishment-level data during the Great Recession from Japan. The findings show that STW leads to a decrease in both hiring and separations, with no significant positive effect on net employment. The observed curtailed hiring can be attributed to STW’s function as a labor hoarding mechanism, stimulating firms to retain excess labor and hindering new hiring. Furthermore, through subsidizing labor hoarding, STW may exacerbate job security disparities between standard and non-standard workers, as firms generally lack the motivation to hoard non-standard workers. These findings have important implications for policy evaluation, emphasizing the need for a comprehensive understanding of STW effects on both separations and hiring.
JEL Classification: J08, J23, and J63