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Germany: Keeping Their Wages Through Kurzarbeit

The global economic crisis has cut wage growth worldwide in half. That’s one conclusion of the ILO’s Global Wage Report. When people have less to spend, businesses suffer, and they in turn have to look at ways to cut costs, wages, and even jobs. But in Germany’s tightly run manufacturing sector, employees and employers worked together with the government to protect jobs and maintain wage levels during the darkest days of the crisis.

Date issued: 15 December 2010
Size/duration: 00:02:32

Script:

This holiday season in Germany, many people are looking, but not many are buying.

Gengenbach Christmas market stallholder, Germany

Last year at this time our sales were double what they have been this year.

Gengenbach Christmas market stallholder, Germany

It’s very, very quiet. We expected a lot more people than this. Hopefully more people will come on the weekend, but it’s very worrying.

Germany’s manufacturing sector has been especially hard hit. New orders were down 30 percent at this factory in Rastatt. There were widespread fears that wages, and then jobs, would be cut.

Ms. Margarethe Wagner, Machinist

Personally, I was afraid, like all the workers here. Ordinary people like us always worry that we could lose our jobs.

But the German government reacted quickly to keep workers employed without cutting their wages, using a tool that has been on the books since the 1920s.

The short-time work program, called “Kurzarbeit” enables companies in financial distress to apply for wage subsidies to cover payroll costs.

Horst Sahrbacher, Director, Employment Office

In this case, the government directly paid employers 60 to 67 per cent of each worker’s net income loss; the result was that the employers could deal with restructure and the crisis more effectively.

Employers could send underutilized workers home, knowing that their payroll was being met by the government, paid for out of Germany’s unemployment insurance fund.

At this factory in Rastatt, workers and management agreed to the idea quickly, and to other measures to protect wages.

During the boom times, many German companies set up “time accounts” for employees. At the beginning of the crisis, credits for overtime and vacation were “cashed in.” Pay levels stayed the same.

Ms. Margarethe Wagner, Machinist

This worked really well, because while we used up our overtime and vacation hours, our wages didn’t change. This was very important, to know our pay wouldn’t be cut.

When the time accounts were exhausted, Kurzarbeit kicked in, and the German government provided partial subsidies of up to 70 per cent of workers’ salaries directly to employers.

Employees worked fewer hours, but the level of wages and benefits stayed the same. No one got fired and the factory stayed open.

Forty kilometers away, a very different story. This small packaging and logistics company in Bühl didn’t cut wages, but also didn’t take advantage of the Kurzarbeit program. Six people lost their jobs.

Mr. Thorsten Fellmoser, Business Owner

The crisis hit us hard. We lost thirty percent of our sales. I simply didn’t have any other choice.

Mr. Andreas Burkart, Team Leader

I learned that 100 per cent job security doesn’t exist. It doesn’t matter how good your performance, if you don’t get orders from customers your job isn’t 100% secure, despite everything else.

If workers can keep earning, they can also keep spending. But if wage growth falls as it has globally according to a report from the ILO, it can slow down economic recovery.

Ms. Manuela Tomei, Director of the ILO Conditions of Work and Employment Programme (in English)

These trends have been seen as factors that have contributed to triggering the financial and economic crisis and contributed to a very slow economic recovery…

As the crisis eased in Germany, Kurzarbeit programs began to be phased out. The program ended in July at the Rastatt factory, as orders began coming in again. It wouldn’t have been possible without all sides working together.

Mr. Bernd Schmid, Plant Manager

When you can reach a reasonable consensus between the company and the workers, and this consensus is supported by the government, the Kurzarbeit program is a very good way to prevent unemployment, and all the social costs involved.

Margarethe Wagner, Machinist

I know that the company did something for me, the ordinary worker. We weren’t forgotten. In the crisis, you only heard about the companies, not the workers. We were an important part of this story, and the company took that seriously.

Sustaining jobs and wages through economic crisis has helped Germany achieve a sustainable economic recovery. Things are looking brighter for these holiday shoppers and markets alike.

Tags: employment, part time employment, hours of work, minimum wage, low wages

Regions and countries covered: Germany

Unit responsible: Department of Communication (DCOMM)

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