Buying Itself Out of a Recession: Countries Ask How Germany Avoided Mass Unemployment

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In the United States, companies can use the tool of short-time work in some states, like New York and California. Elsewhere, such as in the Netherlands and most Eastern European countries, employees who are on reduced working hours receive no government subsidies to offset their lost wages. In Greece and Italy, government financial support is restricted to seasonal temporary work, in cases in which hotels and restaurants are closed during the winter. But industrial workers are not eligible for the programs.

The labor laws in Austria, Switzerland, Spain and France are the most similar to those in Germany. But Austria is the only country that follows the German example, and pays social security contributions for short-term workers for up to 24 months. In Germany one in five companies adjust work schedules to reflect order volume, accumulate overtime hours and, when order volume is down, reduce working hours. Only 12 percent of all companies take advantage of this measure in France, 10 percent in Great Britain, 7 percent in Spain and 6 percent in Italy.

Company agreements that provide for flexible working hours are often not possible in other countries. In Brazil, France and Spain, for example, there are usually multiple unions that are at odds with one another, and one union almost always stands in the way of reaching agreements with management. When a crisis strikes, layoffs are usually management's only option.

The fact that many German companies do everything possible to keep their core workforce has something to do with experiences from the previous upturn, when there was suddenly a shortage of skilled workers. Companies like Schneider in Bad Kreuznach are dependent on skilled workers. Schneider manufactures high-quality lenses, not only for cameras and movie theater projectors, but also for NASA and Germany's highway toll system.

"If we laid off employees," says Schneider CEO Josef Staub, "we wouldn't have been able to find skilled workers during a subsequent recovery."

At first, employees depleted their time accounts, in which they had accumulated up to 200 overtime hours each. After that, many were sent onto a short-time work program, with the exception of employees in R&D and sales -- the reasoning being that, during the slow period, engineers would improve the products and the sales staff would work all the more aggressively to secure orders. The strategy worked, says Staub, particularly in Asia.

Another reason Schneider has avoided layoffs is that its employees have also proven to be flexible in another respect: by working in locations where there is enough to do. Some employees agreed to be transferred from Bad Kreuznach to a plant in Dresden, while others moved from Göttingen in central Germany to Bad Kreuznach. Those for whom no work could be found attended training classes that were partly financed by the employment agency. Now orders have picked up again. In October, 180 employees, including newlywed Dirk Christian, switched from short-time work back to full-time employment. Short-time work is the ideal tool for cases like Schneider's.

Flawed Planning

In other companies, however, short-time work programs and working-time accounts cannot prevent layoffs. Automotive supplier Karmann, for example, is letting go half of its workforce. The company has filed for bankruptcy protection, and if the VW Group doesn't follow through with plans to acquire Karmann, all of its remaining 1,600 employees will also be out of work. Steelmaker ThyssenKrupp cut 13,000 jobs in the last fiscal year alone, and according to internal planning documents, the company will trim its labor force even further in the coming fiscal year. It plans to eliminate an additional 20,000 jobs worldwide, including about 10,000 in Germany, by September 2010. When positions become vacant, they will no longer be filled, and entire divisions will be either sold or shut down.

These harsh cutbacks are also the consequence of flawed business planning. ThyssenKrupp had planned for a sustained growth phase. "Everything in the company was expanded beyond what was necessary," says a senior manager.

But when the crisis came, the demand for steel and ships collapsed. ThyssenKrupp is expected to report a loss of half a billion euros for its most recent fiscal year. ThyssenKrupp executives say that there are industries in which Germany is no longer competitive, such as container shipbuilding, which is now dominated by emerging economies. Those industries, say the executives, ought to be abandoned altogether, and keeping the related divisions artificially alive with short-time work programs doesn't make any sense. For this reason, ThyssenKrupp has more than cut in half its number of short-time workers, from 49,000 to 20,000.

Company labor representatives, like Bruno Fischer of ThyssenKrupp Gerlach, a subsidiary that supplies parts to carmakers, are protesting against the reduction of short-time work programs. Fischer wants to use short-time work to secure the 950 jobs at the company's plant in Homburg in southwestern Germany until the end of 2010, to see if the order situation improves by then. Management, on the other hand, wants to cut 350 jobs -- 150 of them immediately, if possible. Fischer, a member of the works council, says: "We will escalate the dispute, if necessary."

Short-Time Work Isn't a Long-Term Solution

The developments at ThyssenKrupp show that Germany's currently favorable unemployment statistics are merely a snapshot in time. By no means do they prove that Germany is already over the worst in this crisis. BASF CEO Jürgen Hambrecht says that his company's sales are still down by 20 to 25 percent. It will take years before the company returns to 2008 levels. "We aren't out of it yet," says Hambrecht.

All of the tools that have protected Germany against sharply rising unemployment so far are only effective for a limited period of time. Working-time accounts and short-time work programs can help bridge a downturn, but they are no substitute for empty order books. The bridges are still holding up. Companies can continue to employ their core workforce for one or two more years. But if sales don't pick up by then, they too will not be able to avoid cutting jobs.

The Federal Employment Agency is cautiously optimistic for the near future. None of its early indicators suggest that large-scale layoffs are to be expected any time soon. The Nuremberg-based agency does expect, however, a slight, seasonally adjusted rise in unemployment in the coming months. But Frank-Jürgen Weise, the head of the agency, warns against too much optimism. "We are cushioning the crisis with too much money," he says.

The government is spending €5 billion this year on short-time working programs alone -- €5 billion for a small miracle in the labor market, but one with only a limited shelf life. It is "completely clear," says the head of the employment agency, "that we won't see the real effects until next year."

MARKUS DETTMER, FRANK DOHMEN, DIETMAR HAWRANEK, JANKO TIETZ

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• Part 1: Countries Ask How Germany Avoided Mass Unemployment
• Part 2: Labor Laws in Different Countries