Crisis impacts usage of fixed-term contracts

Germany saw a moderate decline in fixed-term employment in 2008–2009 compared with the EU average. An analysis of data from the Institute for Employment Research (IAB) reveals restrictive use of fixed-term contracts by crisis-hit manufacturing industries paralleled by ongoing expansion in some service sectors. By 2009 almost half of all new employment contracts were temporary and fixed-term workers’ chances of gaining a permanent contract had dropped considerably.

Because it is easier to end fixed-term contracts than open-ended ones, fixed-term workers might be expected to be more strongly affected by the economic crisis than those on standard employment contracts. But although this trend was evident across the EU, Eurostat’s Labour Force Survey (LFS) figures for Germany differ from the EU27 average, displaying only a very slight drop in fixed-term employment in 2008–2009. Over the 2000s, the overall increase of temporary contracts in Germany matched the European average, but from autumn 2008 to spring 2010, the percentage share of fixed-term workers declined by only 0.3% to 14.3% compared with a drop of 1% to 13.3% in the EU27.

Analysis of the data from a recent survey (in German, 405Kb PDF) by the Institute for Employment Research (IAB) revealed that the German development is due to ongoing expansion of fixed-term employment in some service sectors and to a restrictive use of fixed-term contracts in the crisis-hit manufacturing sectors. However, fixed-term employees in manufacturing sectors were more affected than standard workers. The study draws on the findings of the IAB Establishment Panel, an annual representative employer survey covering 16,000 establishments in all sectors across Germany.

Key findings

According to Establishment Panel data, fixed-term employment grew from 6.1% in 2001 to 9.3% in 2008 before dropping to 8.3% in 2009. The expansion was spurred by the service sectors.

Employers in social services, non-profit organisations and public sector organisations gave job funding structures and temporary demand as the main reasons for concluding fixed-term contracts. In the manufacturing industries, employers reported that fixed-term contracts were most often used for flexible employment adjustment and for screening potential employees. But for employment adjustment, manufacturing industries prioritised working time arrangements, short-time work and temporary agency work.

Consequently, by 2008 only 12.8% of all fixed-term workers were employed in manufacturing industries, but 20.6% were employed in market-related services and 36.5% in social services (health/social care, education/training, public administration, non-profit organisations). In 2008–2009, a slight increase in fixed-term employment in these service sectors partially compensated for the decline in fixed-term jobs in manufacturing industries.

The table gives 2008 and 2009 data on the distribution of fixed-term work. It highlights the difference between manufacturing industries and some service sectors, and indicates a further shift of fixed-term work to the service sectors during the economic crisis.

Notes: Establishment Panel data. 2009 data on market-related services include ‘scientific services’ and services by freelancers. Changes in classification make 2008 and 2009 data only partly comparable.

Source: Hohendanner, 2010, Table 1

In the first half of 2009, the overall number of fixed-term workers in manufacturing industries was 35% lower than the year before. In contrast, the overall change in the number of standard employees in these industries amounted to only 6%. First, this development was due to a steep decline in (any) new employment contracts: if a new contract was concluded this was rather an open-ended than a temporary contract. Secondly, about twice as many fixed-term contracts expired in 2009 than in 2008 without being extended or renewed. Because fixed-term contracts are used in the manufacturing industries for screening and employment adjustment, workers’ chances of getting a permanent contract after the fixed-term contract expires are typically better than in the service sectors. But during the 2008–2009 crisis, workers had a significantly lower chance of obtaining a permanent contract than in 2008, with the transition from temporary to permanent employment being much less frequent in 2009 than in 2008. However, the opposite tendency was at work in some of the service sectors. In the non-market-related social services, for example, the majority of new employment contracts were for a fixed period.

Commentary

In 2009, almost half (47%) of all new employment contracts were of a fixed duration (compared to 44% in 2008). In large companies (250 or more employees) the figure was as high as 67%. The IAB findings indicate that this development cannot be attributed to new screening strategies of career-starters, an explanation often heard in public debates. Rather, they signal a long-term tendency in a broadening range of sectors and the downside of temporary measures to combat unemployment, such as job-funding structures and project work. While they might have addressed one prominent problem, similar policy decisions at German and European level have facilitated this development and instead exacerbated the threat of job insecurity. New decisions are needed to deal with a growing share of insecure jobs.

Reference

Hohendanner, C., Befristete Arbeitsverträge zwischen Auf- und Abschwung. Unsichere Zeiten, unsichere Verträge?, IAB Kurzbericht 14/2010, Nuremberg, Institut für Arbeitsmarkt- und Berufsforschung, 2010, available online at http://doku.iab.de/kurzber/2010/kb1410.pdf.

Birgit Kraemer, Institute of Economic and Social Research (WSI)