»Kurzarbeit verhindert großen Anstieg der Arbeitslosigkeit«

Since the beginning of the twenty-first century, Germany has experienced three major economic slumps with strikingly different labour market outcomes: the long-lasting economic stagnation following the economic downturn after the bursting of the dot-com bubble and the first Gulf war (Herzog-Stein, Lindner, and Zwiener 2013), the Great Recession as a consequence of the global financial and economic crisis (Herzog-Stein, Lindner, and Sturn 2018), and now the Coronavirus Crisis as a result of the Covid-19 pandemic. Whereas the longlasting economic stagnation was a near disaster for the German labour market and unemployment reached record levels, the employment performance in the Great Recession some years later is seen as a great success story in terms of safeguarding employment.

A crucial factor behind the success in safeguarding employment during the Great Recession was massive working-time reductions via internal flexibility. It refers to the internal adjustment of the amount of labour input used in an establishment’s production process along the intensive margin with the help of various working-time arrangements. Overall, strong working-time reductions were responsible for nearly 1.3 million safeguarded jobs or around half of all safeguarded employment in that crisis (Herzog-Stein, Lindner, and Sturn 2018, Tables 3 and 4). The major instruments used for temporary working-time reductions were short-time work (STW), working-time accounts (WTA), reduced hours of overtime work, and collectively agreed temporary reductions in regular working hours.

Among all the various instruments of internal flexibility, STW gained most attention in the economic literature in the context of the Great Recession. While there is no doubt that STW was an important and effective tool of safeguarding employment during the Great Recession in Germany per se (Boeri and Bruecker 2011; Cahuc and Carcillo 2011; Hijzen and Venn 2011; Hijzen and Martin 2013), a more recent strand of literature distinguishes between the effectiveness of the rule-based and the discretionary component of STW (Balleer et al. 2016; Gehrke and Hochmuth 2021). The former refers to the pre-existing legal regulations regarding STW and its function as an automatic stabilizer during economic slumps. The latter refers to the common practice of discretionary crisis-induced, temporary legislative changes especially with respect to the eligibility criteria or the financial arrangements of the short-time-work scheme (Bogedan 2010). Whereas Balleer et al. (2016) argue that firms’ hiring and firing decisions are mainly determined by long-run expectations which can only be affected by permanent rules, Gehrke and Hochmuth (2021) state that discretionary measures work as an incentive for further labour hoarding and prevent hysteresis effects. Empirically, their estimates regarding the effectiveness of both components are inconclusive. However, the German experience with the extraordinarily pronounced cyclical working-time reductions during the Great Recession (Herzog-Stein, Lindner, and Sturn 2018) suggests that both the rule-based as well as the discretionary component of STW played an important role in safeguarding employment.

Apart from STW, working-time accounts mark the only other instrument of internal flexibility that is addressed explicitly in the literature. The use of WTA is common in Germany. According to Ellguth, Gerner, and Zapf (2018), in 2016 nearly 60 per cent of all employees in Germany had a working-time account, compared to only 35 per cent in 1999. WTA are not explicitly there to safeguard employment in an economic crisis. Rather, their main aim is to help establishments to organise work in a more flexible way. Consistent with this view, the direct empirical evidence regarding safeguarding employment by  WTA in the Great Recession is rather weak (Bellmann and Gerner 2011; Boeri and Bruecker 2011; Bohachova, Boockmann, and Buch 2011; Bellmann, Gerner, and Upward 2012; Balleer, Gehrke, and Merkl 2017). Still, as far as WTA are used to smooth the use of labour as factor of production over the business cycle, they might help to safeguard employment.

Due to the necessity of a partial lockdown of economic and social activity to limit the spreading of the virus in March 2020 it was obvious that the economic shock and hence the labour market impact of the Covid-19 pandemic would be severe. The German government signalled to all economic agents early on that its aim was to safeguard employment, but this time on an even larger, previously unprecedented scale. Therefore, it reacted quickly to facilitate the access to STW in a similar fashion as in the Great Recession.

Since the challenges in the Coronavirus Crisis are even greater, we analyse the measures taken to safeguard employment - especially in comparison to the Great Recession. More specifically, we pursue the question whether the lessons learned from the Great Recession provided a current blueprint for the selected policies. Due to intensive use of short-time work and the pronounced differences how the crises affected employees, we also investigate the distributional income aspects of the crisis.

Our analysis shows that - similar to the Great Recession - cyclical workingtime reductions were a major factor in successfully safeguarding employment during the Coronavirus Crisis. However, in the Coronavirus Crisis its relative importance in safeguarding employment is much higher. Labour hoarding via a procyclical reduction in hourly labour productivity is of similar absolute magnitude like in the Great Recession, but its relative importance is much smaller. Whereas during the Great Recession all instruments of internal flexibility contributed to the reduction in working time, STW now accounts for almost all of the working-time reduction. This time STW was more rapidly extended, more generous, and for the first time a stronger focus was put on securing household income on a broad basis. The current crisis is more severe and affects almost all sectors of the economy. Low-wage earners are not only more frequently in STW but also suffered on average relatively greater earnings losses. A hypothetical average short-time worker had a relative income loss in April 2020 that was more than twice as large as that in May 2009. Furthermore, marginal employment is affected strongly but not protected by STW.

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