This paper documents the deadweight loss of the current short-time work scheme. I combine macroeconomic evidence and modelling to identify and quantify the effect of incentives to use the labor-market programme on employer-employee matching. By deriving an optimal short-time work policy, I show that current schemes provide too strong incentives to reduce the number of hours worked, resulting in lower output, lower earnings and higher public expenditure. I propose reducing subsidies for hours not worked and introducing subsidies for hours worked to offset the deadweight loss of short-time work schemes.