How Germany Maintains Steady Labor Market Despite Recessions

The German labor market has been surprisingly bulletproof during the economic downturn,

outperforming the United States and already beginning to tick downward, falling to 8.5 percent in March from 8.7 percent a year earlier.

The German labor market has been surprisingly bulletproof during the economic downturn,

The German labor market has been surprisingly bulletproof during the economic downturn,

outperforming the United States and already beginning to tick downward, falling to 8.5 percent in March from 8.7 percent a year earlier.

The German labor market has been surprisingly bulletproof during the economic downturn,

outperforming the United States and already beginning to tick downward, falling to 8.5 percent in March from 8.7 percent a year earlier.

Two recent reports help explain why. The reports offer some lessons that could be applicable in the United States and other countries.

One big reason Germany has kept a lid on unemployment, already well known, is the widespread use of so-called short work — “Kurzarbeit” in German. [br]

The scheme allows companies to cut workers’ hours, with the government making up some of the lost wages.

During the first quarter of 2010, 22 percent of firms surveyed by the Ifo Institute, a Munich research organization, said they were using Kurzarbeit, according to this piece in the New York Times.

Among manufacturers, 39 percent were taking advantage of it.

One reason Kurzarbeit is so popular with companies is that it allows them to hang on to skilled workers.

As the Commerzbank economist Eckart Tuchtfeld points out in a note issued Wednesday,

Germany’s highly specialized companies have found during previous upswings that their growth was held back by lack of highly trained people.

(Germany is chronically short of engineers.)

Kurzarbeit has allowed companies to keep their work forces intact, suggesting that the German economy could be poised to snap back pretty quickly as demand recovers.

According to the Ifo survey, 34 percent of companies that are using Kurzarbeit plan to start reducing it, while only 14 percent plan to expand its use.

Companies such as the automaker Daimler have already begun increasing working hours again.

Kurzarbeit tends to get the most attention, but Mr. Tuchtfeld at Commerzbank said in his report that there were some other factors at work that were also crucial to saving German jobs.

The most important may be the increasing use in the last decade of so-called work-time accounts.

Often as part of contracts with labor unions, companies allow workers to bank overtime hours during busy periods, and then take paid time off when business is slow.

It’s still true that German law makes it costly and difficult to dismiss workers outright, and that the country scores in the middle of the labor market regulation index maintained by the Organization for Economic Cooperation and Development.

But the nation, which values labor peace and job security, seems to have been able to find other ways to build in flexibility.

“From around the mid-1990s onwards,” Mr. Tuchtfeld wrote, “rigid working hours were increasingly replaced by regulations that allow companies to make more flexible use of their staff.”

The bottom line, Mr. Tuchtfeld calculated, is that without the flexibility measures, about five million Germans would be jobless today,

instead of the 3.5 million that actually are unemployed.

And he expects the numbers to continue falling.