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Working time accounts (WTAs) allow firms to smooth hours worked over time. The purpose of this paper is to analyze whether this increase in flexibility has also affected how firms adjust employment in Germany over the business cycle.

This paper uses rich microeconomic panel data and fixed effects estimations to compare the employment adjustment of firms with and without WTAs.

The authors show that firms with WTAs show a similar separation and hiring behavior in response to revenue changes as firms without WTAs. One possible explanation is that firms without WTAs used short-time work (STW) to adjust hours worked instead. However, the authors find that firms with WTAs use STW more than firms without WTAs.

These findings call into question the popular hypothesis that WTAs were the key driver of the unusually small increase in German unemployment in the Great Recession.