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."
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.
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.
Labor Laws in Different Countries
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.
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