Germany, a Crisis Management Model?

3.8 million – that’s the estimated number of jobs that have been lost to the eurozone crisis thus far. There is, however, a great deal of variation between countries: Greece lost over one million jobs, Italy around 800,000. The German labour market, on the other hand, has proven itself to be comparatively stable. The sociologist Olaf Struck explains why, and at what cost.

Flexibilization of employment is the creed that the European Commission has been professing vehemently for years. “The notion is that the labour market is in synch with the economy,” explains Professor Olaf Struck. “If the economy is doing well, people get hired. If it’s doing badly, there are layoffs.” Struck holds the Professorship of Labour Studies at the University of Bamberg and one of his main fields of research is the international comparison of labour market structures. In recent years, Struck has observed a flexibilization phase in the labour markets of every European country.

Labour market reforms: greater openness, increased mobility

Germany is no exception to the trend. “Germany had always had an employee-friendly labour market that was guided by strict statutory regulation,” says Struck. Some examples of this have been strong dismissal protection, limited opportunities for longer-term and repeated temporary employment contracts and comparatively low rate of subcontracted labour.

Guided by the employment strategy of the Organisation for Economic Co-operation and Development (OECD) and by the European Commission, major reforms have been made to the German labour market in recent years. In a word, “The German labour market has become more flexible,” says Struck. Due to the reforms known as the “Agenda 2010,” dismissal protection was loosened and temporary employment was liberalised, making it easier to repeatedly issue temporary employment contracts. “Another example was the Hartz legislation: the reduction in unemployment benefits after one year increases the pressure to begin working again,” explains Struck. But despite these reforms, legal regulations still exist.

Reform’s short-term success

According to the European Commission, the traditional rigidity of the German labour market is a counterproductive force. The Commission propagates open, mobile labour markets that it considers to be the drivers of economic vitality, enhanced social welfare and higher employment rates. And indeed Struck concurs, saying, “Many of these reforms have proven successful.” There have been increases in employment, particularly in the form of temporary work and so-called “mini jobs.” These developments have also spelt relief for social security funds. Nevertheless, Struck makes the case that “the flexibilization of the European labour markets loses sight of the true need for reform.”

Flexibility harmful in times of crisis

In order to meet the challenges of the economic and fiscal crisis, Ireland, Greece and Spain primarily set about taking flexibility measures. Germany took a contrasting approach, as Struck explains: “Rather than being laid off, staff was kept in the companies.” In order to do this, German companies fell back on established, historically developed structures – the very structures that the European Commission had criticised as being “too rigid” in the previous years. Social security, particularly the statutory pension fund, proved to be a significant factor in overcoming the crisis. “It maintained pensioners’ purchasing power, because pension revaluation in public systems is carried out in a delayed manner based on wage development,” says Struck.

Continued employment in place of layoffs

Furthermore, unemployment insurance, using co-financing of “classic in-company measures” like short time working, was able to preserve jobs subject to social insurance contributions. Companies additionally utilised internally flexible shift scheduling and working time regulations by clearing particularly full flexitime, weekly and yearly working-time accounts. Struck offers this brief summary of the measures: “Work was reduced, but labour contracts were preserved.” He continues, saying, “Around 1.2 million jobs were able to be saved, and that ultimately contributed to the stability of the domestic economy.” In contrast, countries like Spain, Ireland and the Baltic states registered the largest increases in unemployment. These countries completely lack state instruments like short time working or partial unemployment benefits which are received by those workers who lose one of their multiple jobs subject to social insurance.

So why did employers try to forego laying off staff? In Germany, the companies most affected by the crisis were primarily successful enterprises in industrial sectors like automotive manufacturing, engineering and chemistry. “Employees in these sectors are particularly well-qualified professionals and technicians,” explains Struck. “An employer that let that kind of staff go would also lose crucial know-how.“

Low-skilled, high risks

However, this is not to say that there were no casualties of the crisis in Germany. Whereas skilled workers and technicians profited from regulations like short time working, the circumstances for staff in fields requiring only low-level qualifications couldn’t have been more different. Struck points to unskilled labourers as an example, saying, “In their case, employers hardly had any incentive to keep them on.” This resulted in the dismissal of many temporary workers and it meant that many employees’ short-term contracts were not renewed. “The gap between the two groups got wider during the crisis,” says Struck. This all points to one crucial factor for ensuring stability and protecting against unemployment: education.

Contact for enquiries (from 30 August 2015)

Prof. Dr. Olaf Struck
Professor of Labour Studies
Feldkirchenstrasse 21
Telephone: +49 (0)951/863-2690
Email: olaf.struck(at)uni-bamberg.de

Notice

This press release was written by Andrea Lösel for the University of Bamberg’s press office and was translated by Benjamin Wilson. It may be used without restriction for journalistic purposes.

Please direct all queries or image requests to the press office either by email or telephone at medien(at)uni-bamberg.de, or +49 (0)951-863-1023, respectively.