Higher Pre-Pandemic Digitalisation Level Led to Less Short-Time Work in the 2020 Crisis

Local labour markets with high levels of digital capital – i.e. computers and other information and communication technologies (ICT) – before the pandemic had significantly fewer employees having to be put on short-time working during the first eight months of the pandemic in Germany. One channel for the effect of digital capital is that it is essential for employees to work from home. This is the result of a recent study by ZEW Mannheim. Regions with little digital capital, on the other hand, were at a disadvantage: in areas that were among the bottom 20 per cent of the digital capital distribution in Germany, the share of employees on short-time work schemes was up to 25 per cent above average during the first lockdown.

The possibility to work from home decreased the likelihood of being put on short-time working, but only in local labour markets with enough digital capital at the onset of the pandemic. Simply being able to work from home did not lead to fewer employees on short-time work: Regions with low digital capital had equally high short-time work rates, regardless of whether the option to work from home was available. “The decisive prerequisite for a low short-time work rate was therefore the availability of digital capital,” says Dr. Sarra Ben Yahmed, one of the authors of the study and a researcher in ZEW’s “Labour Markets and Social Insurance” Department. “The fact that employees can work from home at all is only made possible by the appropriate availability of digital capital, such as a well-functioning Virtual Private Network (VPN) and adequate ICT support,” explains Ben Yahmed.

However, as the ZEW study shows, the availability of digital capital in pre-pandemic times combined with the possibility of working from home only had effects until autumn 2020. After that, the shares of employees in short-time work had already converged again. The inequality across local labour markets was of a temporary nature. One may infer that the short-time work schemes probably helped to avoid long-term negative effects in regions with previously low digital capital. Germany introduced flexible short-time work schemes right at the beginning of the COVID-19 pandemic, which were heavily used. For example, the average short-time work rate rose from close to zero to 18 per cent in April 2020. Local differences in the use of short-time working were high in April 2020, varying by up to 25 percentage points. While there were regions with short-time work rates well below ten per cent, the rate in severely affected regions was just below 30 per cent.

The ZEW study used various data from the Federal Employment Agency, such as the monthly Labour Market Report, which contains detailed information on labour markets at the municipal level and for individual sectors. The authors summarised this data for German municipalities into 257 local labour markets that are strongly interconnected economically.