Germany is using a familiar weapon to prevent massive layoffs

Almost half a million companies in Germany have sent their staff on short-term working schemes — known as “Kurzarbeit” — to trim their payroll costs with immediate effect. Never before, not even in the financial crisis of 2008, has the number of these applications jumped so rapidly.

Short-term working worked well as a tool to prevent massive layoffs during the last crisis. It sends people home or slashes their hours substantially, but keeps them officially employed with the state funding around two-thirds of their salary.

Essentially, workers get as much as two-thirds of their pay even if they don’t work. And the company is not burdened by staff costs in times of severe economic stress.

“Kurzarbeit is a great tool both for employees and employers as it gives the former income security and the latter more security for planning the next months when the economy really contracts,” Stefan Schneider, chief German economist with Deutsche Bank, said in a phone interview.

It is a proven tool from the last crisis. When German economic output contracted by 5% in 2009, an average of 1.1 million workers were affected over the year, costing Berlin around 10 billion euros ($10.9 billion). But by the end of that year, the unemployment rate stood at 7.6% — lower than it was in 2008.

This time, the government expects some 2.35 million people to be drawing “Kurzarbeitergeld” — a short-term allowance — which could cost the Federal Labor Office more than 10 billion euros. But Germany, traditionally frugal with its cash, is well-equipped to deploy these funds and has saved during the good years. Even the Labor Office itself has built up reserves of 26 billion euros, which now can be used to support companies and employees.

Germany is using a familiar weapon to prevent massive layoffs, CNBC, Apr 3