The Effect of Preserving Job Matches During a Crisis

It is generally difficult to measure the importance of preserving worker-firm relationships, particularly for low-wage jobs that involve general skills. The COVID-19 pandemic led to the sudden and seemingly temporary disruption of millions of otherwise productive employment relationships around the world. Using novel administrative and survey data from Denmark, the authors study a policy where firms paid up to 25% of wages to furlough instead of firing workers. The authors find that aid-taking firms furloughed about 24pp more workers, a large share of whom would have otherwise been laid off, and this had a positive impact on subsequent firm survival, employment growth and sales. Further, the authors find firms derive value from maintaining ties to low-wage and blue collar workers and that preserving those matches is beneficial to firms, suggesting policies that preserve job matches may help speed-up recovery.