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The Use of Flexible Measures to Cope with Economic Crises in Germany
Werner Eichhorst, Institute for the Study of Labor (IZA)
Overview
1. Basic features, structural developments and crisis adjustment
2. Industrial relations and wage setting
3. Vocational training
4. Employment and social protection
5. Policy considerations
Basic features of the German system
Core of the labor market strong social protection employment protection collective bargaining co-determination highly developed internal flexibility
Growing segment of non-standard contracts fixed-term employment temporary agency work part-time self-employment
The recent transformation of the German labor market
Long period of stagnating employment persistent high employment
Structural change by 1. Stepwise de-regulation of non-standard contracts (mid-1980s)
2. in particular fixed-term contracts and temporary agency work
1. Stricter availability criteria for the unemployed and more coherent activation policies
2. Growing flexibility inside and at the margin of collective agreements
Performance of the German labor market during the crisis (IAB data)
2008 2009 20102011
(medium IAB scenario)
Real GDP, % +1.0 -4.7 +3.6 +2.4
Hours worked, % +1.2 -3.1 +2.9 +1.7
- In full-time +1.0 -4.0 +2.8 +1.7
- In part-time +2.6 +1.2 +3.4 +1.8
Total employment, % +1.4 -0.1 +0.5 +0.9
Total employment, 1,000 40,216 40,171 40,438 40,841
Employees covered by social insurance, %
+2.1 0.0 +1.2 +1.6
Unemployment, 1,000 3,268 3,414 3,238 2,927
Unemployment rate, % 7.8 8.1 7.7 7.0
Patterns of flexibility in European countries
Source: Eichhorst/Marx/Tobsch 2009.
Industrial relations
Different levels of interaction trade unions and employers
1. Company-level co-determination in larger firms
2. Plant-level co-determination via works councils
3. Sectoral/regional collective bargaining 1. sectoral trade unions and employer associations
2. without interference from the government
Low level of conflict constructive and pragmatic dialogue
Major source of societal problem solving capacities
Internal flexibility
Most advanced sytem of internal flexiblity
at company level
1. Working time flexibility1. via working time accounts (hours bank)
2. Functional/occupational flexibility 1. based on vocational training
2. continuous vocational training for skilled workers
3. Growing role of wage flexibility 1. negotiated at the plant level
2. even within existing sectoral agreements
Allows companies: restructure - remain competitive
Bargaining coverage (% of employees)
76
73
7071
70 70
6867
65
63 6363
57
5556
5554
53 5354 54
5251
65
50
55
60
65
70
75
80
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
%
West East
Source: WSI, Statistisches Taschenbuch
A recent development: binding hourly minimum wages in Germany (EUR and BRL per hour)
West East
EUR BRL EUR BRL
Construction industry Minimum wage I: 11.00Minimum wage II: 13.00
25.3029.90
9.75 22.43
Roofing trade 10.80 24.79 10.80 24.79
Electrical trade 9.70 22.31 8.40 19.32
Industrial cleaningWage group 1: 8.55Wage group 6: 13.33
19.7730.66
Wage group 1: 7.00 Wage group 6: 8.88
16.120.42
Painting and varnishing trade
Unskilled workers: 9.75Skilled workers: 11.75
22.4327.03
9.75 22.43
Old-age care sector 8.50 19.55 7.50 17.25
Security services 7.95 18.29 6.53 15.02
Laundry services 7.80 17.94 6.75 15.53
Temporary agency work 7.79 17.92 6.89 15.85
Source: Bundesarbeitsministerium, as of September 2011.
Vocational training in Germany
Core of German production model in manufacturing and crafts – providing occupation - and industry - specific skills
'Dual' system combining schools and firms
Fixed-term contracts with individual companies high conversion into permanent contract
Co-managed by social partners: curriculum and examination Standardization and comparability
binding occupational profiles and compulsory examinations
Declining share of cohorts in dual apprenticeship structural change, tertiarization – changing vocational degrees
Problem: young people unable to access vocational training
German working-age population by highest qualification (ISCED-97), 2008
Source: Mikrozensus
Benefit system and active labor market policies
Dual structure:1. Unemployment insurance contributions
1. employers and employees
2. earnings-related benefits of limited duration
1. Means-tested income support, tax-funded Combined
activation policies broad range of active labor market measures in particular hiring incentives and training
Active labor market policies for job placements training schemes hiring subsidies safeguard existing jobs (subsidized short-time work)
Short-time work („Kurzarbeit“) helped manufacturing jobs to survive (only) in 2009
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Jan
. 0
8
Fe
b.
08
Ma
rch
08
Ap
r. 0
8
Ma
y 0
8
Jun
e 0
8
July
08
Au
g.
08
Se
pt.
08
Oct
. 0
8
No
v. 0
8
De
c. 0
8
Jan
. 0
9
Fe
b.
09
Ma
rch
09
Ap
r. 0
9
Ma
y 0
9
Jun
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9
July
09
Au
g.
09
Se
pt.
09
Oct
. 0
9
No
v. 0
9
De
c. 0
9
Jan
. 1
0
Fe
b.
10
Ma
rch
10
Ap
r-1
0
Ma
y-1
0
Jun
e 1
0
July
10
Au
g-1
0
Se
p-1
0
Oct
10
No
v-1
0
De
c 1
0
Stock, East
Stock, West
Notifications
Source: Bundesagentur für Arbeit
2009: About 4% of all employees, 11% in manufacturing, 20% in car making, about 350.000 FTE (would be 1 PP unemployment rate)
Employees‘ contribution rates to social insurance
0%
5%
10%
15%
20%
25%1
97
0
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
20
09
old-age careunemploymentsicknessOld-age pension
Source: BMAS.
Labor costs in manufacturing (% of gross wage), 2010
West East Total
Charges for hours worked 75.1 77.5 75.4
Remuneration for non-working days 17.4 17.2 17.5
Vacation 10.1 9.8 10.1
Illness 3.3 3.5 3.4
Public holidays 4.0 3.9 4.0
Special payments 7.3 5.3 7.1
Wealth creation 0.4 0.3 0.4
Fixed special payments 6.9 5.0 6.7
Social insurance contribution 18.9 20.1 19.0
Occupational pension plan 5.6 2.3 5.3
Other charges related to personnel 4.3 3.9 4.3
Total 128.8 126.4 128.6
Additionally: 7.1
Share statutory labor costs 25.9 27.7 26.0
Charges related to personnel in % of charges for hours worked 71.4 63.1 70.6
Source: IW Köln.
Structure of the working age population in Germany, 1995-2009
Occupational dualization
Business
professionals
Skilled manufacturing + office clerks
Medium- to low-skilled personal services
Less skilled blue collar workers
Employment protection
Regular (permanent) contracts: dismissal protection companies with more than 10 workers
Dismissals based on reasons urgent business reasons or malconduct no dismissal because of inferior performance
Social selection criteria (tenure, age, child support obligations) Procedural requirements (information of works council) Complex system with high legal uncertainty Workers frequently appeal against dismissal High potential costs if employer loses law case
agreements on termination severance payment
Coverage by dismissal protection in Germany, 2008
Source: GSOEP
Cases filed in labor courts (total and concerning dismissals) and share of settlement deals (1999–08)
Source: Statistisches Bundesamt
Flexible types of contracts
Fixed-term contracts Maximum duration without valid reason 24 months (3 renewals) Equal treatment and strong protection within duration of contract Mainly used as extended probationary period
Temporary agency work High external flexibility: redundant any time But still employment relationship with temporary work agency
(permanent or fixed-term on contract) No maximum duration for assignment Sectoral collective agreements significantly below wage level in
user companies, e.g. metalworking industry
Types of contract, dismissal protection and unemployment benefit coverage in Germany
Type of job Coverage by dismissal protection
Coverage by unemployment
insurance
Coverage by minimum income
support
Full-time open-ended contracts
Yes Yes yes, with means-testing
Part-time work Yes Yes
Fixed-term contracts
No, but stable duration
Yes
Temporary agency
work
Yes (if open ended) Yes
Self-employed No Voluntary
Marginal part-time workers
Yes (if open ended) No
Number of temporary agency workers in the crisis
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Actual values
6 per. Mov. Avg. (Actual values)
Source: BA, ow n calculations
employment loss and recovery of about 250,000 agency workers
Employment patterns during the crisis, change 2008/2009 in %
Manufacturing Health, social services
All establishments
Hirings -60 +3 -17
- Fixed-term jobs -66 +3 -11
- Transitions temp/perm -35 -1 -14
Termination of contract +43 -1 +6
- Voluntary quits -35 +7 -21
- Dismissals +114 -6 +40
- Non-renewal of FTC +129 -9 +15
Employment change mid-2008/mid-2009
- FTC holders -35 +2 -6
- Temp agency workers -49 +34 -38
- Empl covered by insur. -6 +1 0
Source: Christian Hohendanner, IAB Kurzbericht 14/2010.
Conclusions
Labor market institutions able to deal with the crisis Plant-level cooperation was crucial Contribution by works councils and core workforce Supported by successful government intervention
('Kurzarbeit')... ...and secondary workforce Mix of 'internal' and 'external' flexibility
suitable for German production model
Normative concerns: insider-outsider problem Need for re-regulation?
Policy lessons
1. Automatic stabilizers promoting internal flexibility1. working time flexibility
2. wage flexibility
3. short-time work
Avoid job losses in skilled core labor force
If shocks are temporary
• Second tier of employment 1. helps buffer the core (FTC, TWA)
2. volatile employment at the margin creates challenges 1. employment stability
2. social protection
3. need recalibration of protection and unemployment benefits
Werner EichhorstIZA
IZA, P.O. Box 724053072 Bonn, Germany
Phone: +49 (0) 228 - 38 94 – 531Fax: +49 (0) 228 - 38 94 180E-mail: eichhorst@iza.org
http://www.iza.org