Carlo Favero, Sebastian Vismara and Iryna Kaminska
The slope of the yield curve has decreased in the US and the UK over the last few years (Chart 1). This development is attracting significant attention, because the yield curve slope (i.e. the difference between longer term government bond yields and shorter term government bond yields) is a popular business cycle indicator, and a fall of longer term yields below shorter term yields (i.e. an ‘inversion’ of the yield curve) has historically been considered as a powerful signal of recessions, particularly in the US.
Short-time work (STW) schemes are an important fiscal stabiliser in many countries. In the Great Recession, 25 out of 33 OECD countries used short-time work schemes (Balleer et al. 2016). STW schemes aim to preserve employment in firms temporarily experiencing weak demand. This is achieved by providing subsidies to firms to reduce number of hours worked by each employee, instead of reducing the number of workers. As well as being paid for actual hours worked, the subsidy is used to pay workers for hours not worked – albeit not completely compensating the loss of income due to reduced hours. In most countries, the bulk of the subsidy is paid by the state, although companies can also contribute.