“Economies around the world have taken Germany’s model of short-time work as an example in the Corona crisis. The instrument, which has been regarded as a German success story in the fight against unemployment since the 2008/2009 financial crisis, is now being used in many other countries in a similar way. As the current employment outlook of the OECD, unemployment has risen comparatively moderately there.
According to the OECD analysis, the unemployment rate has risen sharply on average among the 37 OECD member states as a result of the crisis – from 5.3 percent in January to 8.4 percent in May. In the case of the most favourable development, the OECD-wide unemployment rate could reach 9.4 percent by the end of 2020 – the highest level since the Great Depression of the 1930s. In Germany, on the other hand, the increase is much smaller. It is even lower in France. Other European countries are also recording below-average growth.
“While unemployment has risen massively in Canada and the US, short-time working has so far prevented this in large parts of Europe, especially in Germany,” says OECD labour market economist Sebastian Königs. “The model has become a German export hit.”
15 countries have introduced short-time working models
Indeed, the analysis shows that some countries with comparatively small increases are currently relying on a large reduction in working hours. This means that in France, Italy and Germany, such measures affect a particularly large number of employees. The latest data for Germany come from the Institute for Labour Market and Occupational Research (IAB) of the Federal Employment Agency (BA) and show a share of 20 percent of all employees for May.
The working time reduction models vary, but what they have in common is the principle: employees stay in the company, but work less and receive compensation for this. According to the OECD, 15 countries have reintroduced such systems in the wake of the Corona crisis, including Australia, New Zealand and the UK. “In addition, there are countries that have fundamentally changed their systems due to the positive German experience,” says Königs.
He cites France as an example. The French had previously practised a model that was used by only a few employers. In the Corona crisis, however, the French would have made the system much more generous. “Germany has clearly served as a model here,” says the OECD expert. As a key change, Königs points out that the costs for employers have been massively reduced and that they have not had to pay any share of the short-time working allowance or social security contributions for hours not worked.
Crisis hits low earners hardest
But in Germany, too, the short-time working system has weaknesses. “The crisis is hitting the weak in Germany particularly hard,” says Königs. By this he means the employees in the low-wage sector, of whom there are particularly many in the Federal Republic. For them, short-time working allowances are often very low.
A recent study commissioned by the Bertelsmann Foundation shows that around 7.7 million people, or more than one fifth of all employees in Germany, work in the low-wage sector. By definition, this applies to all those earning less than EUR 11.40 gross per hour. Since the 1990s, the low-wage sector in Germany has grown by a good 60 percent. In no other country does he assume such a scale, it is said.
For many, according to King, the crisis now means painful losses. In Germany, short-time workers initially receive 60 percent (with at least one child 67) percent of the lost net wage – for those who earn little anyway, the Hartz IV can mean. If short-time working lasts longer, salaries can rise to up to 87 percent. Mini-jobbers, who under current rules are allowed to earn up to 450 euros a month, do not benefit at all from this safety net. Since they do not pay contributions to unemployment insurance, they are not entitled to short-time working allowances.
Financing problems also in Germany
According to OECD economist Königs, other countries are more generous in short-time working allowances. He again mentions France as an example. Here, the government has drawn a pedestal: “Low-income earners automatically get the full minimum wage in short-time working,” says Königs. “This ensures that they are crisis have a good livelihood.”
However, he also points out that it is still unclear which model will turn out to be better in the end. Because with very generous systems, financing problems may soon arise. Even in the German system, it is foreseeable that BA’s reserve will not be enough and that the federal government is estimated to have to step in with almost five billion euros.
The Institute of the German Economy (IW), which is close to the employer, also points out that the mere focus of the replacement rate is too short. Not only the level of performance differs between the countries, but also other characteristics. In Denmark, for example, the rules were not based on a legal basis, but on a collective agreement basis. “In doing so, they are evading a comparison, because for Germany alone, corresponding rules from tens of thousands of collective agreements would have to be opposed,” states the IW short report “Short Working in Europe”. In Sweden, a maximum of 60 percent of the usual hours worked is encouraged.
In addition, some countries used gross wages, while Germany used net wages. Gross wages usually lead to higher benefits. In most of these countries, however, short-time working allowances must be taxed like the normal wage, so that the resulting net benefit is lower. In addition, the reference period of up to 12 months in Germany is comparatively long.
Fear of the second wave
It remains to be seen how successful short-time working actually is in the end. In the United States, many people lost their jobs, but now, according to OECD analysis, many workers have returned to their jobs. In short-time working countries, on the other hand, the opposite effect could be seen.
“Even if only a small proportion of companies get into trouble, unemployment will rise,” says Königs. If there is no second wave of pandemics, the OECD expects the unemployment rate for Germany to rise to around 4.5 percent. Should such a second wave occur at the end of the year, a further increase is therefore to be expected until 2021. “In both cases, this is a noticeable but very moderate increase by international standards,” says Königs.
According to data from the Federal Employment Agency, 2.85 million people were unemployed in Germany in June, an increase of 40,000 compared to May. The unemployment rate rises by a tenth of a percentage point to 6.2 percent. The OECD figures differ somewhat from this, as an internationally harmonised definition of the unemployment rate is used. According to projections, the number of short-time workers in April was 6.83 million – the highest level ever reached in the Federal Republic. For May, the preliminary estimate is only six million.