Macroeconomic Implications of the German Short-time Work Policy during the Great Recession

Macroeconomic Implications of the German Short-time Work Policy during the Great

Despite a sharp fall in GDP, German employment in terms of employees stayed remarkably robust during the Great Recession. At the same time, hours worked per employee declined significantly. This is seen as the core of the German employment ‘miracle’. A general discussion arose about the reasons behind this astonishing labour market performance and the role of short-time work (STW) as a kind of exportable panacea. In this article we look at the macroeconomic implications of STW and other measures of internal flexibility, in particular focusing on the quantification of safeguarded jobs during the crisis. We find that STW played an important role and helped to safeguard employment in Germany during the Great Recession. However, we show that other measures of internal flexibility (working time accounts, contractual arrangements on working time reductions, reduction of overtime) were equally important. Together with STW these instruments saved around 1 million jobs. To explain and understand the German success story, the features of the German core model – with a strong employer–employee relationship of mutual trust, strong employment protection, traditional standard working contracts and strong works councils at the firm level – are of key importance.

Policy Implications

  • Measures of internal flexibility were equally important as short-time work in Germany during the Great Recession. Together, they safeguarded 1 million jobs.
  • The strong social partnership between employer and employees in Germany, especially in the manufacturing sector, underpins the use of measures of internal flexibility.
  • The German core model is based on a strong employer–employee relationship of mutual trust, strong employment protection, traditional standard working contracts and strong works councils at the organisational level.
  • Short-time work is not a panacea that will always work. Crucially, it depends on the institutional setting in which it is used.
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