Can public employment subsidies render theGerman construction sector weather proof?

In order to con¯ne excessive levels of temporary layo®s, US ¯rms are taxed - albeit incom-pletely - according to the unemployment insurance bene¯ts claimed by their laid o® workers.In contrast, German construction ¯rms are not charged according to their layo® historyand should thus have much higher layo® incentives. However, in case of a weather-inducedshortfall of work, a ¯rm's workforce is eligible for a partial subsidy to their employmentcosts. The level of this subsidy was subject to several reforms throughout the 1990s whichprovides a unique opportunity for examining the empirical link between layo® incentives andlayo® rates. Our analysis is based on large individual administrative data merged with in-formation about local weather conditions and the business cycle. We observe economicallyplausible e®ects: the higher the subsidy to employment costs, the less layo®s occur and theless weather-dependent is employment.