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News : EU Economy Last Updated: Apr 24, 2009 - 5:31:05 PM

Short-time work in Germany: A flexible instrument to fight the crisis according to Deutsche Bank Research
By Finfacts Team
Feb 24, 2009 - 5:06:35 AM

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Deutsche Bank Research economist Frank Zipfel, says provisions in Germany’s economic stimulus packages I and II, regarding the the funding for short-time work, have become a focus of economic policy debate again. The new regulations have given rise to great expectations, with the prolongation of the funding for short-time work, geared towards averting redundancies. Zipfel says recent data seems to confirm this.

Since the end of November 2008, the number of applications (by both individuals and companies) for funding for short-time work resulting from the economic downturn has soared, affecting above all the mechanical engineering, metal processing and car-making sectors. Zipfel says even though the number of filings does not reveal how many persons actually are in short-time work, it can serve as a helpful indication of how companies assess the general business situation and economic environment. The numbers analysed give some indication of the effects of the recession on the labour market and thus on the real economy. At the same time, they reveal that nearly 300,000 endangered jobs will not be lost for the time being.

Germany’s federal agency for employment (BA) provides funding for short-time work based on business cycle or economic reasons under Section 170 of the Social Security Code (SGB III) if certain conditions are met (among other things, at least one-third of a company's staff must be affected by loan cuts of at least 10% of their monthly gross pay). If this is the case, the amount paid by the BA for each eligible employee is based on 60% (or 67% for employees with children) of the flat-rate calculation of the missing net pay.

Zipfel says employers continue to pay their employees but will be reimbursed by the BA. If, for instance, the hours worked in a company are reduced by half, the employee will receive only half of his/her normal pay. The BA will then pay the employee 60% of the other half of his/her wage or salary. Thanks to substantially reduced wage costs, companies can usually manage without lay-offs, which benefits both sides: employees can keep their jobs and the company its experienced staff. The reduction of working hours and disbursement of funding for short-time work are tied to certain legal provisions. Besides business cycle-induced funding for short-time work there is also seasonal funding for workers of companies in the construction sector who receive compensation for bad winter weather.

The time frame for funding for short-time work was extended to 18 months (ending at end-2009) in the first economic stimulus package; now the second package foresees further measures to simplify the process. At present, for instance, employers still have to cover 80% of the social-security contributions normally levied on the missing wage. This rate is now to be reduced (and may fall to zero under certain circumstances) and the BA would then also cover the cost. Moreover, the procedure is to be streamlined.

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