“Extended coverage and benefit duration boosted the role of short-time work in Italy during the Covid-19 crisis”

In many European countries, short-time work proved to be a strong measure to combat massive layoffs during the Covid-19 pandemic. In the case of Italy, a scheme widely used in former times of crisis was applied and partly modified: “The Cassa Integrazione Guadagni”. In this interview, Giulia Giupponi, Assistant Professor of Economics at Bocconi University, will offer some insights into the Italian short-time work approach and the lessons learned from applying the instrument during the Covid-19 crisis.

What were the objectives of the short-time work scheme used in Italy during the Covid-19 pandemic?

The Cassa Integrazione Guadagni scheme pursues four objectives: Firstly, supporting companies in financing hours reductions (though the benefit is paid to the employee, not to the firm). Secondly, paying benefits to employees for the hours not worked. Thirdly, allowing companies to temporarily lay off parts of their workforce, since in Italy short-time work can be used to subsidize both partial and full hours reductions. And fourthly, distributing the costs of adjustment across the workforce.

Did Italy have any experience with applying short-time work schemes before the outbreak of Covid-19?

The Italian short-time work programme was introduced during World War II in 1941 and was made permanent in 1945. The programme has been used ever since.

The Italian short-time work scheme is made of three pillars: The Cassa Integrazione Guardagni Ordinaria, Straordinaria, and Deroga

What is the basic structure of the Italian short-time work scheme “Cassa Integrazione Guadagni”?

The Italian short-time work scheme is made of three pillars: Cassa Integrazione Guadagni Ordinaria (CIGO), Cassa Integrazione Guadagni Straordinaria (CIGS), and Cassa Integrazione Guadagni in Deroga (CIGD).

Can you give us an overview of the target group of each pillar, the benefit level, and the maximum duration of the subsidy?

Cassa Integrazione Guadagni Ordinaria (CIGO) targets small transitory shocks, including those in demand or production, or accidents involving forced reduction in activity (e.g. adverse weather conditions, earthquakes, power cuts). It is available to companies in the manufacturing and construction sectors and has a maximum duration of 13 consecutive weeks. Firms can use Cassa Integrazione Ordinaria for a maximum of 52 weeks over two years.

Cassa Integrazione Guadagni Straordinaria (CIGS) targets economic shocks, such as company crises, reorganization, and – until 2016 – insolvency. It is available to companies with more than 15 employees in the manufacturing and construction sectors, and with more than 50 employees in the service sector. The maximum duration is 12 months for company crisis and 24 months for company reorganization. Possibilities of extension are limited.

Cassa Integrazione Guadagni in Deroga (CIGD) is an additional programme created in 2009 to provide access to short-time work to firms and workers not eligible for Cassa Integrazione Ordinaria. It was abolished in 2016. At that time, it had a maximum duration of 3 months.

How did the target group, the benefit level, and the duration of the subsidy change during the Covid-19 crisis?

During the pandemic, the duration of the subsidy was repeatedly extended via decrees, without prejudice to the duration of future use of short-time work for non-Covid-19-related reasons. There were no changes to the statutory level of the subsidy replacement rate.

Moreover, Cassa Integrazione in Deroga was reinstated to cover firms and industries not eligible for Cassa Integrazione Ordinaria. Duration extensions were granted until the end of 2022.

With the reinstatement of the Cassa Integrazione in Deroga programme, coverage expanded substantially during the pandemic.

How did the eligibility criteria of the scheme change during the Covid-19 pandemic?

Before the pandemic, short-time work was mainly available to workers in the manufacturing and construction sectors, with Cassa Integrazione Straordinaria only available to firms with a size above certain thresholds. To be eligible for the scheme, a worker was required to have at least 90 days of employment with the firm. Coverage expanded substantially during the pandemic with the reinstatement of Cassa Integrazione in Deroga. Additionally, the minimum requirements regarding the duration of employment were removed, mainly to benefit temporary workers.

What was the maximum take-up rate in 2020 and in 2021?

According to lavoce.info, the maximum take-up rate was 26 percent of employees in April 2020 and 9 percent in March 2021. Extended coverage and benefit duration boosted the role of short-time work in Italy during the Covid-19 crisis.

Cassa Integrazione Guadagni is partly financed by experience rating.

How is the Cassa Integrazione Guadagni programme financed?

In normal times, Cassa Integrazione Ordinaria and Straordinaria are financed by ordinary contributions paid by eligible firms as a percentage of the gross salary of their employees. In addition, the programmes are partly financed by an experience rating component, meaning that the firms that take up the programme pay additional contributions, calculated as a percentage of the subsidy received by employees.

Are there any measures to avoid deadweight losses and misuse by the firms that receive financial support but actually do not need it?

In normal times, when firms apply for a subsidy, they need to provide evidence of economic need and a recovery plan. Additionally, the scheme has an experience rating or cost sharing component, which increases according to the amount of short-time work hours used.

Evidence from the Great Recession points to positive, though limited reallocation effects of short-time work in Italy.

Did the support system, in your view, slow down the necessary reallocation processes in the economy?

This is difficult to assess and, as far as I know, we lack an evaluation of reallocation effects during the pandemic. Evidence from the Great Recession points to positive, though limited reallocation effects of short-time work in Italy in the context of a prolonged crisis in which the scheme ended up subsidizing a significant share of low-productivity firms, according to my analysis together with Camille Landais. The Covid-19 shock was different for two main reasons. On the one hand, the severity of the shock was largely unrelated to firm productivity, implying that short-time work was unlikely to subsidize predominantly low-productivity jobs. On the other hand, though, the level of benefit take-up was much larger than during the Great Recession. Hence, we cannot exclude the possibility that short-time work may have stronger negative effects on reallocation than what was found previously.

Is there a financial incentive for employers to offer on-the-job training for their employees while receiving support?

No.

Have there been incentives for benefit recipients to look for a new job?

No.

Evidence from the Bank of Italy indicates that the combination of measures implemented during the pandemic contributed to a substantial reduction in layoffs.

What is your assessment of the general effectiveness of the job retention scheme or alternative policies aimed at cushioning employment effects of the crisis in Italy?

Evidence from the Bank of Italy indicates that the combination of measures implemented during the pandemic contributed to a substantial reduction in layoffs. This is consistent with a body of quasi-experimental evidence from the Great Recession as described in studies by Daniel Kopp and Michael Siegenthaler in 2021, Pierre Cahuc in 2021, and Camille Landais and myself in 2022, showing that short-time work is an effective tool for preserving employment.

Importantly, the Covid-19 crisis accelerated the process of reform of social insurance schemes in Italy and, in 2022, led to the approval of a reform that strengthens the role of short-time work by achieving de jure universal coverage, increasing benefit generosity, and bringing uniformity to the system.

Importantly, the Covid-19 crisis accelerated the process of reform of social insurance schemes in Italy.

When are the special rules applied during the pandemic due to be phased out?

Most rules associated with Covid-19 have meanwhile been phased out.

Personal details

Giulia Giupponi is an Assistant Professor of Economics in the Department of Social and Political Sciences at Bocconi University. Her research interests are in the areas of Labour and Public Economics, with a focus on social insurance programs, minimum wage policy, and labour market inequalities.

Literature

Cahuc, Pierre; Kramarz, Francis; Nevoux, Sandra (2021): The Heterogeneous Impact of Short-Time Work: From Saved Jobs to Windfall Effects, CEPR Discussion Paper 12269.

Giupponi, Giulia; Landais, Camille (2022): Subsidizing Labor Hoarding in Recessions: The Employment and Welfare Effects of Short Time Work, (forthcoming), Review of Economic Studies.

Kopp, Daniel; Siegenthaler, Michael (2021): Short-Time Work and Unemployment in and after the Great Recession, Journal of the European Economic Association 19(4): 2283-2321.

doi: 10.48720/IAB.FOO.20230308.02