Short-time Work May Be Too Short-Term for U.S.

Since President Obama announced the December job summit this month, the policy world has scrambled to put forth their ideas on how to best stimulate job creation in our jobless recovery. Some have noticed the surprisingly low German unemployment rate in the face of the Great Recession; Germany has been one of the worst-hit European economies, but their unemployment rate ticked down from 8.6 percent in March to 7.7 percent in October of this year. Commentators have credited Germany's ability to retain jobs to a 5 billion Euro government policy directly aimed at job retention in times of crisis - known as Kurzarbeit.

Kurzarbeit is a short term (24 month), short-time working program in which the government provides a type of unemployment insurance to workers and employers. This allows firms to cut labor costs without firing workers by spreading hourly cuts across all employees. The government pays 60 percent of an employee's salary if it is cut by 10 percent or more, and, from month seven onward, also relieves businesses of their responsibility to pay social security contributions of workers in the program.

The Organization for Economic Co-operation and Development (OECD) has praised the program for saving 500,000 jobs, or one percent of Germany's labor force. The Kurzarbeit program has thus been heralded as a "secret medicine to cure unemployment" and an economic policy the U.S. government would do well to emulate.

Indeed, Germany's relatively low unemployment figures are impressive considering that it has been one of the western European countries worst-hit by the global economic downturn.

There are good arguments for such a short-term fix to unemployment: most importantly, it immediately offsets rising unemployment levels, and all of the economic and psychological damages to both individuals and families that accompany being unemployed. Workers on the program are likely to make more than they would receive on unemployment benefits alone, and are probably less likely to join the ranks of the long-term unemployed as they search for alternative employment.

However, while they should be lauded for looking outside the U.S. for ideas, proponents of a Kurzarbeit-like program as a method for stemming increasing unemployment have missed the larger picture in Germany, and may be attributing greater impact to the program than it deserves.

First, the short-time working program has about 1.1 million participants in Germany, whose lost hours lost amount to about 335,000 full-time jobs, and can hardly account for the decrease in German unemployment rates compared to earlier predictions, according to a recent Speigel article.

Instead, current unemployment picture in Germany has been supported not only by Kurzarbeit, but by other programs and policies supporting the unemployed and subsidizing vocational training, as well as the greater power of German workers and labor unions (relative to American workers) to negotiate with employers.

Daimler provides an example of how this setting has given both firms and workers greater flexibility. Work councils and management agreed upon an 8.75 percent reduction in working hours and pay for workers across the board, in return for keeping more workers on. Some workers participate in Kurzarbeit. Others also have ‘working-time accounts' in which they accrued up to 300 overtime hours instead of overtime pay during busy times, which they are now using as ‘vacation' instead of being laid off. Although this is a very temporary solution to the downturn, it is delaying rising unemployment figures for the moment. This flexibility has also allowed Daimler to keep German workers on their payroll while laying off workers in Japan and the United States. 

The German employment situation is a result of uniquely-German labor market characteristics. Sadly, Kurzarbeit, which would work well in a healthy industry with skilled workers that will be needed when an upswing returns, does not appear to be the cure-all that we would like it to be.

This is the case because the U.S. employment situation is a result of our uniquely-American market characteristics. From 2001-2007, almost half of all jobs created were in the bubble-inflated sectors of housing, consumer retail and finance. These are jobs that should not have been saved by short-time working programs. The U.S. does not need a short term-only fix built on the assumption that there will be future expansion in that sector or industry that will allow workers to become full time again.

The U.S. needs a jobs policy that will help the Americans who are already unemployed as well as those who become victim to our mounting unemployment rate. However, job creation and employment programs must also build a foundation for longer term economic growth, with a focus on investment in our infrastructure and public services. These are areas that can spur immediate employment and are known to have multiplier effects within the economy. With no ‘secret medicine' in sight, the Obama administration needs to make serious and significant commitments to the job creation task at hand.