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This WSJ piece is quoting our work with @giulia_giupponi on short time work. But is missing the point: First, yes, in a traditional recession, short time work policies tend to keep afloat job matches that are marginal i.e. often jobs in less productive firms.1/n https://twitter.com/WSJ/status/1362356237384486918
When shocks are persistent, these jobs will be destroyed anyways, and STW is a short fix, with limited long term effects for workers. They do provide useful temporary support though, but as a consequence also delay realloaction...2/n
In Italy during the great recession, we show that indeed...STW slowed down reallocation, and reduced productivity grwoth. But these effects are quantitatively small! 3/n
But now, and that is the main point: this recession is not a traditional recession: the shock was driven by the pandemic risk, and therefore largely orthogonal to the pre-crisis productivity of firms. 4/n
If firms are in dire straits, this is not because they are zombie firms per se (permanently low productivity firms), but because their liquidity issues will turn into solvency issues if we do not deal with their debt overhang 5/n
it is a self imposed problem which should not be dealt with by aggresive cleansing, but to the contrary by debt restructuration...Otherwise we will lose a lot of productive jobs out there!! 6/n
so our recommendation is to the contrary that we should not encourage a quick exit from STW, but deal aggressively with debt overhang in the corporate sector!
