Short-time work saves at least two million jobs

style="float: right; margin-bottom: 10px; font-weight: 600;"Mon 10th May, 2021

The Corona pandemic shook humanity in many ways. In 2020, the German economy collapsed as severely as it had only once before since World War II. However, a balance sheet reveals how the government prevented worse. According to a new study, short-time work saved more than two million jobs. Nevertheless, there is still a need for reform: Many short-time workers have found themselves in financial difficulties. Workers in culture and gastronomy lost an average of 30 percent of their income.

The best way to see how well policymakers have responded to Corona is to compare it with previous crises. In many previous recessions in the Federal Republic, unemployment rose dramatically. Only in the 2008/2009 financial crisis did the government break this fatal pattern. In the pandemic, it is doing far more by spending heavily on short-time work, calculates Alexander Herzog-Stein of the Macroeconomic Policy Institute (IMK) and other researchers. Measured in terms of hours cut, the government saved 2.2 million jobs at the height of the crisis, according to the study, which is available to the Süddeutsche Zeitung. It thus saved six times as many jobs as it did during the financial crisis.

Andreas Peichl thinks that's a plausible extrapolation. "The German model of short-time work is a super thing. Several countries have now copied it," says the head of the Ifo Center for Macroeconomics, who will soon present his own study on the subject with the EU Commission's research center.

The number of jobs secured shows how badly the pandemic would have affected the labor market without short-time work. In some previous crises, the unemployment rate doubled. In 2020, by contrast, it only rose from 2.3 to 2.7 million.This small increase seems all the more remarkable because the omens this time were less favorable than during the financial crisis. Back then, the Lehman crash caused the economy to collapse in the middle of a boom. Industrial employees had accumulated a correspondingly large number of hours on working time accounts. Companies were able to cope with part of the crisis by simply reducing these hours and releasing them to employees.

This time, German industry was already in recession before the Corona pandemic broke out. Accordingly, the working time accounts were empty. Moreover, unlike during the financial crisis, this time the economic slump hit many service providers such as restaurants and stores, where working time accounts are less common than in industry.

Policymakers therefore had to absorb much more through short-time work than during the financial crisis. "The government managed to do this by supporting employees and companies more quickly and generously than during the financial crisis," says Alexander Herzog-Stein, who heads the Labor Market Department at the IMK Institute, which has close ties to the trade unions.Because the economic slump is hitting many low-paid service providers this time around and companies are slashing working hours, the model's limits are becoming apparent. During the financial crisis, a single person in tax bracket one earned an average of a good 2,100 euros net per month before the short-time work and lost 180 euros due to the reduction in working hours. This time, those affected earned an average of just under 1700 euros beforehand - and lost 300 euros in April 2020, a fifth of their income. This left them with less than 1400 euros a month.

Most recently, the number rose again: In February, there were 3.3 million short-time workers

In the case of parents, the losses were somewhat lower due to the higher short-time allowance. There are also differences between economic sectors. In catering, culture and other services, losses were higher in percentage terms. Collective bargaining agreements are less common in these sectors than in industry, so fewer companies add to the short-time allowance.

"Short-time work successfully safeguards jobs, but it can put employees with lower wages in a precarious position," says Ulrike Stein, who heads the Pension, Wages and Inequality unit at the IMK. She therefore suggests, for example, paying low-wage workers a higher percentage of short-time allowance. Andreas Peichl of the Ifo Institute shares this idea. "Households with higher incomes put a lot of money aside during the crisis. They are well protected. There is a lot to be said for paying low-income earners more."

Peichl sees further need for reform: "The government should give companies and employees more incentives to use short-time work for qualifications." To secure their job permanently or to recommend themselves for a new job.When the government decided in 2020 to extend extended short-time working benefits until the end of this year, there was a different debate in Germany. Liberal economists warned that this would waste money and keep "zombie companies" alive. What can be said about this today, one year after the outbreak of the pandemic?

Andreas Peichl reports that companies that were already doing worse before the crisis were more likely to accept short-time work and other government assistance. "There are certainly zombie companies. But there won't be an insolvency tsunami because of it. The extension of short-time work was by and large the right thing to do. In a historic crisis, politicians should rather do too much than too little."

Alexander Herzog-Stein thinks the zombie debate is nonsense. "We economists are sometimes good at painting such a thing on the wall in sweeping terms, but bad at proving it concretely. The worst thing that can happen now is to jeopardize the success of short-time work out of excessive austerity on the last legs."The issue remains topical a year after the outbreak of the pandemic: in February, the German Federal Labor Agency counted 3.3 million short-time workers. Since the lockdown in the fall, the number has risen again.

Image by Gerd Altmann


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