Companies strive to maintain employment in economic crisis

The manufacturing sector in Germany has been more severely affected by the economic crisis than banking, where the crisis began. Nonetheless, only few companies adversely affected have laid off workers, with most companies freezing recruitment plans and introducing cost-cutting programmes instead. Efforts to avoid dismissals are also reflected in the fact that about one in five companies have introduced short-time working or temporarily cut wages or working hours.

In September 2009, the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) published the results of a survey (in German, 1.7Mb PDF) on companies’ adjustments to protect employment during the economic crisis. The survey was conducted in the second quarter of 2009. It reveals that establishments in various sectors of the economy have been affected in different ways by the crisis. Irrespective of the sector, however, the vast majority of companies have so far refrained from laying off staff.

Impact of crisis on companies

According to the survey findings, 39% of companies have been adversely affected by the economic downturn, while 7% revealed that the crisis could even jeopardise their survival. In general, there was no difference between large and small establishments. However, the responses show that the magnitude of the impact of the economic crisis on companies varies between industries.

More than half of the manufacturing establishments surveyed reported exceptionally unfavourable business conditions. This proportion is notably larger in metalworking (about 70%) where almost one in five companies are struggling for survival. In the chemicals sector, 61% of companies confirmed that they had experienced a large reduction in orders. Every tenth company considers its future at risk. Nonetheless, the situation is more favourable in banking, for example. Due to the government’s stabilisation programmes for the financial services sector, only 22% of the companies in banking reported that they had, at that time, been adversely affected by the crisis.

Company measures

More than four in five establishments have frozen their recruitment plans as a result of the economic crisis (see table). In most cases, the reaction of companies whose survival is jeopardised does not significantly differ from that of all affected companies. However, significantly more small enterprises with fewer than 10 workers (86%) and those with fewer than 50 workers (78%) have deferred recruitment, compared with large companies with 250 or more employees (49%). Three quarters of adversely affected companies intend to expand their activities into new markets or to develop existing ones. A further 56% of companies have implemented restructuring programmes with the aim of reducing costs.

Company measures to overcome economic crisis (%)
  All adversely affected companies Adversely affected companies struggling for survival
Cost-cutting programme 56 56
Developing markets 76 71
Recruitment freeze 83 85
Short-time working 17 19
Wage concessions or reduction of working hours* 20 29
Dismissals 11 24

Note: * Except short-time working.

Source: IAB, 2009

At the time of the survey, applications for short-time allowances had been made by 17% of establishments. Significantly more large companies with 50 to 249 workers (41%) and those with 250 and more employees (55%) have adopted short-time working compared with smaller enterprises. This may be due to the substantial costs for short-time working being borne by companies even after reimbursement by the Federal Employment Agency (Bundesagentur für Arbeit, BA) (DE0909029I). The same distinction between large and smaller companies applies to wage concessions with or without a reduction in working hours. This may indicate that concession bargaining is more accepted and easily embarked upon in larger companies, in which employee representation bodies are more common.

The survey findings also show, however, that wage cuts and a reduction in working hours without any compensation have been imposed significantly more often by companies that are struggling for survival. This also holds true in the case of dismissals. Although 24% of such companies have laid off employees, compared with an overall average of 11%, both proportions are rather low given the overall economic landscape. The widespread reluctance of companies to lay off core staff may be attributed to the lessons learnt during the previous recovery period when many companies could not find appropriately skilled workers to fill vacant positions.

Oliver Stettes, Cologne Institute for Economic Research (IW Köln)

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