German firms are conflicted about the Kurzarbeit furlough scheme

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June 25, 2021

FOR THE first time in its august history of more than 100 years, the Adlon, a glitzy hotel within sight of Berlin’s Brandenburg Gate, used Kurzarbeit, a scheme in which the German government pays the bulk of wages of people who temporarily stop working or work reduced hours. “Our business was almost completely gone,” explains Daniela Welter, the hotel’s head of personnel, referring to the hard lockdown imposed last November that banned hotel stays for leisure travellers. Thanks to Kurzarbeit, the Adlon was able to save the jobs of all its 347 staff. Today it is hiring again.

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Kurzarbeit dates back over a century and has been mimicked round the world during the covid-19 crisis. In Germany it has been stretched to unprecedented lengths. Whereas some 1.5m German workers at 56,000 firms were furloughed at the peak of the global financial crisis in May 2009, around 6m employees of 610,000 businesses took advantage of the scheme in April 2020, when lockdowns were at their strictest. Last month 2.3m people, or 7% of the German workforce, were still partially or fully furloughed, according to the IFO Institute, a think-tank. The cost to the federal employment agency is €35bn ($42bn) and counting. In June Germany’s labour minister announced an extension of the scheme until the end of September.

Workers and their representatives applaud the extension. A recent study by the IMK, the research institute of the Hans-Böckler-Stiftung, a foundation close to trade unions, found that Kurzarbeit saved 2.2m jobs at the height of the pandemic, compared with 330,000 jobs at the peak of the global financial crisis of 2007-09. As for the government, without the scheme it may have spent even more on its relatively generous unemployment benefits.

Employers are more circumspect. Most agree that Kurzarbeit has its uses. Sebastian Dullien, director of the IMK, says that it enables businesses to hold on to workers and restart seamlessly as the economy reopens, even as their American counterparts struggle to find staff. The BDA, one of Germany’s two main employers’ associations, welcomes the extension.

The lobby group nevertheless warns against funding the furloughs with higher unemployment-insurance contributions, which would would add to firms’ already high labour costs. More surprising, the BDA opposes the full payment of furloughed workers’ social-security contributions by the government until the end of the year, as demanded by the trade-union federation. This would reduce companies’ labour costs but create “wrong incentives” to enrol in the scheme, the BDA cautions.

That in turn could have potentially undesirable consequences for the firms’ competitiveness. Although companies pay more than 30% of the labour cost of furloughed staff, and so have no reason to keep entirely zombie employees on the books, the scheme can discourage businesses from adapting to the post-pandemic reality.

Research by Oliver Stettes of the Cologne Institute for Economic Research, another think-tank, found that firms which tapped Kurzarbeit were 15 percentage points more likely to cut jobs than those which did not. It is not as if the scheme encourages firing. The likelier explanation is that only the worst-affected companies, such as the Adlon or Lufthansa, Germany’s flag-carrier, whose fleet was more or less grounded for months, chose to take part. That in turn suggests that if they can help it, German firms prefer not to. ■

This article appeared in the Business section of the print edition under the headline “Making short work of it”

German firms are conflicted about the Kurzarbeit furlough scheme

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