To tackle the COVID-19 economic crisis, countries around the world have widely adopted (or adapted) cash assistance programs, such as the “US stimulus checks” (see my previous post). Besides traditional fiscal and monetary solutions, we should also consider “non-traditional” labor market policies such as kurzarbeit (short-time work). Kurzarbeit is often used to explain Germany’s exceptional labor market performance during the Great Recession. For instance, from 2009 to 2011, unemployment rates in Germany decreased (2009: 7.7%; 2010: 6.9%; 2011: 5.9%). By contrast, the United States followed the opposite trend (for instance, the unemployment rate in 2011 was 8.9%). What is kurzarbeit? Kurzarbeit, or a reduction of working hours, allows firms to retain workers without having to pay them a full salary. According to the German Ministry for Labor and Social Affairs, Kurzarbeitergeld (short-time allowance) “pays the short-time allowance as partial compensation for a loss of earnings caused by a temporary cut in working hours. This reduces the costs faced by employers in the context of employing workers, and enables companies to continue to employ their workforce even in the event of a loss of orders. In other words, the short-time allowance helps to prevent job losses.” This labor market policy is grounded in Germany’s strong model of social partnership (see Danish entry) in that employers and labor unions (or the affected workers) reach an agreement to reduce working hours and pay. Consequently, the government subsidizes the worker’s lost income. The agreement must be first approved by the firm’s Work Council (an organization representing workers at the firm level) and must be in line with German labor law. If the reader is unfamiliar with these terms and dynamics, I recommend this source. With the COVID-19 crisis, the government has relaxed the conditions for accessing Kurzarbeitergeld. Consequently, many German companies, including Volkswagen, have increasingly taken advantage of this mechanism “Almost 650,000 businesses had applied for Germany's reduced-hours work scheme by April 6th[…] with the government expecting uptake to exceed levels seen in the 2008-2009 financial crisis.” In this process, Kurzarbeit has (once again) gaining much notoriety around the world. “The European Commission is using the German program as a model for a regional effort to encourage that workers are furloughed, not sacked.” It is important to clarify that: 1) this policy has been in place for decades in Germany, and 2) is not unique to this country (for instance, see the post on Spain’s ERTEs). Still, as I discussed in a previous entry, the current crisis could result in policy innovation (in the case of Germany, we can also refer to the staff-sharing deal between Aldi and McDonald) and the diffusion of policy solutions across borders.
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OtheIn the last two weeks, I have been summarizing major stimulus packages around the world. According to a “living-paper” by Gentilini, Almenfi, and Orton (from the World Bank and the International Labor Organization), “As of March 27, 2020, a total of 84 countries have introduced or adapted social protection and jobs programs in response to COVID-19. This is an 87% increase since last week (when countries were just 45), with a total of 283 programs currently in place – a fitting testament to the dynamism of pandemic-related responses in the sector.” While the nature of governments’ responses vary widely across countries, politicians around the world must deal with the following question—how far are they willing to go to protect the economy, workers, and/or the most vulnerable in society? How much debt are they willing to take on? Some commentators, including Mario Draghi, have noted that governments should do whatever it takes to stimulate and rescue their economies. The former president of the European Central Bank noted in a Financial Times article, “Much higher public debt levels will become a permanent feature of our economies and will be accompanied by private debt cancellation.” Others have discussed Milton Friedman's notion of "helicopter money" by which Central Banks print money in countries/Congress spend it. Facing this conundrum, recently the German government secured spending emergency powers– in 2009 this country a “debt break” in the Constitution, which has not been triggered since 2013. The “debt break” limits the structural budget deficit of the federal and Länder governments. In light of this development, on March 25th, the German right-left coalition government passed a €750 billion euros package, €350 billion which are debt-financed (this represents roughly 10% of Germany’s GDP). “The lower house of parliament on Wednesday passed the measures, comprising a debt-financed supplementary budget of 156 billion euros and a stabilisation fund worth 600 billion euros for loans to struggling businesses and direct stakes in companies.” The content of the package is discussed here and here, but it includes:
As in the United States and the Indian federation, German states have created their own initiatives. For instance, a €5,000 emergency fund for free lancers was launched by Berlin. |
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Mariely Lopez-Santana is a Political Scientist and an Associate Prof. at the Schar School of Policy and Government at George Mason University. In the last two decades she has spent much time studying, teaching, and writing about employment policy. She is working on a book project on state intervention and municipal distress. Categories
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