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

Germany, second only to China as the world's leading exporter of goods, has been particularly hard-hit by the collapse of global markets. But the mass unemployment some had feared has failed to materialize. Labor experts in many countries are wondering how Germany has done it.


Business wasn't going well for Schneider, a mid-sized company in the western German state of Rhineland-Palatinate, at the beginning of the year. But the company, which manufactures camera lenses and filters, did not lay off any of its workers. Instead, it put 230 employees onto a short-time working program, including Dirk Christian, a technical supervisor in a final assembly plant.

Christian, 33, took advantage of his free time to renovate his apartment -- and to get married. "Short-term work prevents layoffs," says Christian, "which, of course, makes it easier to make important life decisions, like getting married."

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Photo Gallery: Short Time in Hard Times

Germany currently has 1.1 million workers participating in short-time working programs, known in German as Kurzarbeit. They include people like Christian, who don't have enough work, but who also are nevertheless not being let go. They stay at home for days or even weeks at a time, and yet they receive 80 to 90 percent of their wages, thanks to subsidies paid by the Federal Employment Agency.

Promising Figures

It was due in part to the workers in the program that Germany's new labor minister, Franz Josef Jung, was able to report an astonishing development last Thursday. In the midst of the country's deepest economic crisis, which has led to dramatic declines in order volume in key industries, unemployment was only half a percentage point higher in 2009 than it was in 2008. "The current figures are encouraging," Jung said. There are 3.2 million people registered as unemployed in Germany. At the beginning of the year, many had predicted up to 5 million would be unemployed by this fall.

The German numbers are particularly impressive when compared with those of other countries. Even though Germany was more sharply affected by the economic downturn than most other industrialized countries, it experienced only a moderate rise in unemployment. Countries like the United States, France and Spain, on the other hand, experienced both a shrinking economy and exploding unemployment. In the United States, more than 5 million people lost their jobs within a year, and developments in the labor market in France and Spain are equally dismal.

Union officials and labor market politicians in many countries are now paying attention to how Germany is pulling itself out of the crisis. Its efforts have been conspicuously successful to date, something which comes as a surprise even to many in Germany, who had predicted a gloomy fall for the labor market. "It would take a miracle to prevent us from heading in the direction of 5 million unemployed," Berlin economist Michael Burda had predicted back in September.

There was a "threat that after the Bundestag election, companies would move toward extensive layoffs," says Bosch CEO Franz Fehrenbach, but that, he adds, will "not happen, at least not to the extent that was feared." And Berthold Huber, the president of the German metalworkers' union IG Metall, says: "The predicted wave of layoffs hasn't materialized yet."

There are explanations for the surprisingly positive developments. One is short-time working programs, whose duration had been gradually increased from six to 24 months in recent years. In addition, the previous "grand coalition" government of center-left Social Democrats (SPD) and Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) completely relieved companies of the burden of paying social security contributions for their employees from the seventh month of short-time work onwards.

However the reduction in working hours for 1.1 million short-time workers only corresponds to about 335,000 full-time jobs. Even without short-time working programs, unemployment would hardly have reached the levels once predicted. Agreements among unions, company works councils and corporate executives have given Germany a relatively soft landing until now. Working-time accounts and employment alliances provide Germany companies with unique flexibility. In many companies, employees who work overtime during a boom receive hours credited to a working-time account instead of overtime pay. These hours can then be redeemed during a crisis, with the employees working less while continuing to earn their regular pay.

How to Survive the Downturn Without Laying Off Workers

Some companies were so well prepared for a possible downturn, they were able to survive an almost unbelievably sharp decline in business relatively well. The truck division of the Daimler Group, which employs more than 70,000 people worldwide, has only been able to sell half as many trucks this year as it did in 2008, and yet it did not lay off any of its employees in Germany.

In his "worst-worst scenario," Andreas Renschler, the member of the Daimler management board responsible for the truck division, made early preparations for a 30-percent drop in sales. His goal was to ensure that the truck division, which is particularly susceptible to economic fluctuations, would not plunge into the red the minute the next downturn arrived. During the boom, which lasted until 2008, Daimler hired hardly any new employees. Instead, employees worked special shifts and accumulated up to 300 hours of overtime per employee in their working-time accounts. Now that the economic crisis has cut truck sales in half, employees are working less, which has pushed their working-time accounts into negative territory.

In addition, short-time work was introduced to some of the workforce. For other workers, management and the works council agreed to an 8.75-percent reduction in working hours, together with corresponding reductions in pay. In addition, the company now uses about 1,700 fewer contract and temporary workers in its German truck plants.

Daimler also makes trucks in Asia, North America and South America. Renschler is familiar with the pros and cons of the various production sites. Daimler has laid off workers in Japan and the United States. In Germany, such harsh measures are not planned, not even for next year. "This is where we have the greatest flexibility," says Renschler.


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