New allowances for short-time work in bid to offset economic crisis

On 1 February 2009, new rules for short-time working allowances granted to companies took effect. The new regulations are part of two rescue packages to fight the global economic crisis, by stimulating overall demand. The new rules on short-time working allowances aim to provide relief to employers and safeguard employment. Employers and trade unions welcomed the new regulations as a step in the right direction, while disagreeing on what further measures should be taken.

Since the autumn of 2008, many companies and workers have been adversely affected by the global economic crisis. Following its first rescue package issued in the autumn of 2008, on 27 January 2009 the federal government adopted a second rescue package (in German) that stipulates further investments worth about €50 billion. While the first package was meant to support the German banking system, the second package seeks to achieve broader goals:

  • families are to receive financial relief in the form of tax reduction schemes and lower contributions to statutory health insurance schemes;
  • employment is to be safeguarded by supporting companies;
  • further investments are to be made to secure future prosperity. Such investments are to improve Germany’s infrastructure, education system, environment and economy.

With regard to the second goal, the federal government has changed the rules for short-time working allowances. These allowances are labour market instruments intended to help companies to bridge the hard times of order shortfalls during economic crises; their application is limited to 2009 and 2010.

New regulations for short-time working allowances

In general, companies can apply to their local employment agency for the following three different types of short-time working allowances.

  • Short-time working allowances due to a temporary shortfall in orders (Konjunktur-Kurzarbeitergeld) can be granted to any company irrespective of size or sector.
  • Short-time working allowances due to restructuring or plant closure (Transfer-Kurzarbeitergeld) are paid provided the affected employees are assigned to a transition company where they participate in a continuous training programme.
  • Seasonal short-time working allowances (Saison-Kurzarbeitergeld) are restricted to companies and employees in the construction sector. These allowances are available only during the winter season from 1 December until 31 March. Allowances can be granted if the weather conditions prevent any work from being carried out at construction sites or if the volume of new orders is not sufficient to maintain the employment level at a specific company.

In the first rescue package (in German) adopted in the autumn of 2008, the government had already prolonged the regular entitlement period for short-time working allowances granted due to a temporary shortfall in orders from six months to 18 months. This change took effect on 1 January 2009.

State contribution

Until recently, applicant companies had to notify the regional employment agency that wages needed to be cut by more than 10% for a proportion of at least one third of employees in order to cope with a temporary shortage of orders or unfavourable weather conditions. Employers can still choose to do this. However, another option has been introduced by the second rescue package: companies which can prove that a 10% wage cut is necessary for any specified number of staff can also be granted short-time working allowances by their local employment agency.

Whichever criteria companies choose, after receiving official approval, the company pays short-time allowances to affected workers and is subsequently reimbursed by the local employment agency. The short-time working allowance amounts to 60% (67% for employees with children) of the wage cut (net of taxes). The employer was formerly liable to pay full social security contributions for the working hours cancelled, including the proportion normally paid by the employees.

The new regulations stipulate that employers are to be reimbursed by the Federal Employment Agency (Bundesagentur für Arbeit, BA) for half of their social security contribution payments. Reimbursements can be as high as 100% provided that employers engage in continuous training measures to improve their short-time workers’ skills. It should be noted that the federal government has set up a fund of €2 billion for continuous and other training measures for the 2009–2010. This fund is intended to support:

  • companies that train staff employed for short-time work;
  • young persons not holding a vocational training degree;
  • young persons who have so far failed to secure an apprenticeship or training position.

Further changes relate to credits accumulated on employee working time accounts. According to the new rules, it is no longer necessary for such working time accounts to be run down to zero before short-time working allowances can be granted. Under the new rules, companies can also apply for short-time working allowances for their temporary agency workers.

Take-up of short-time working

As the latest BA figures suggest, a rising number of workers are affected by short-time work and hence may benefit from the new regulations. The volume of applications for short-time working allowances submitted by companies to their local employment agency due to a temporary shortage of orders rose from 137,000 workers in November to 295,000 workers in December 2008, according to a BA press statement (in German). This rising trend continued after the turn of the year with applications for 290,700 and 700,000 workers being submitted in January and February 2009, respectively (see BA press release (in German)). In March 2009, according to figures released by BA (in German), the number of applications dropped slightly to 670,400 workers affected. Most applications were filed for workers in the automobile industry, at its suppliers or machinery manufacturers.

However, it should be noted that BA figures for the first quarter of 2009 are preliminary. At the end of every quarter, companies must report to their local employment agencies how many workers were actually put on short-time work and how many working hours were lost. This is due to the fact that companies, which initially indicated a need for short-time work, may not have put all of the affected staff on a short-time working scheme if, for example, they received new orders.

Position of social partners

On 26 February 2009, a member of the executive committee of the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB), Claus Matecki, called for improved crisis management in a press statement (in German). Due to the introduction of short-time work, the economic crisis had not yet fully unfolded its negative effects on the German labour market. However, Mr Matecki stated that labour market instruments such as the short-time working allowances could not alone counteract the adverse economic effects in the medium term. He argued that further action must be taken by the federal government. Mr Matecki underlined that the rescue packages already adopted were not sufficient and should be supplemented by further measures to foster employment.

On 24 March 2009, the Chair of the Employers’ Associations for the Metal and Electrical Industry (Arbeitgeberverbände der Metall- und Elektroindustrie, Gesamtmetall), Martin Kannegiesser, commented on the situation in the metal and electrical industry in a statement to the press (in German). Mr Kannegiesser stated that all instruments were being used to protect jobs and employment. If short-time work was to mitigate the effect of low order books for as long as possible, establishments would need further relief for their personnel costs. He therefore suggested that local employment agencies should also bear the full costs of employers’ social security contribution payments.

The Gesamtmetall chair also emphasised that, given lasting order shortages, companies and establishments would be forced to consider dismissals in the long run. However, cost reduction measures should be accompanied by corporate investment in research and development. Finally, Mr Kannegiesser called on companies to encourage product innovation even in times of economic crisis. He argued that product innovation is key to securing greater market shares and future economic success for companies, thereby also ensuring future employment.

Sandra Vogel, Cologne Institute for Economic Research (IW Köln)

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