European countries seeking to protect workers from Covid-19 are overwhelmingly looking to Germany.
Across the continent, countries are rolling out their own version of Kurzarbeit, a German program that translates literally to “short-time work.” Under the program, financially distressed employers can drastically reduce worker hours, and the government will pay most of their lost wages. The goal is to help companies preserve jobs, making it easier for them and the broader economy to recover later.
Kurzarbeit has existed for more than a century, but it gained international attention during the 2008 financial crisis, when the number of workers enrolled in it climbed from around 50,000 to more than 1.5 million in a year (pdf, p. 35). The program is widely credited with helping Germany weather the crisis and recover relatively quickly; economists believe unemployment would have risen by twice as much (pdf) without it. Kurzarbeit’s long history and acceptance by both firms and workers is one reason why it works so well in Germany. And because layoffs must clear a higher bar under German law than in a market like the US, making them more onerous and costly, companies are eager to avoid them.
In response to Covid-19, Germany has expanded access to Kurzarbeit so companies can apply when 10% of their employees have reduced hours, down from the previous 30% threshold. Germany has also made these benefits available to temporary workers, and will increase compensation rates (usually 67% of pay for workers with children and 60% for workers without) if workers reach four months on the program at half their normal hours or less.
More than half of the Covid-19 stimulus programs now implemented across Europe involve a version of short-time work, according to a Quartz analysis of OECD and IMF reports. In some cases these programs are brand new; in others they represent an expansion of an existing Kurzarbeit-like scheme (many of which were launched after the 2008 financial crisis).
“The labor market response and social response to this epidemic has seen expansion of short-time work schemes almost everywhere,” said Angelo Martelli, professor of European and international political economy at the London School of Economics’ European Institute. “The famous Kurzarbeit has been established almost all across Europe.”
Denmark was one of the European countries to take the swiftest steps to protect jobs from the coronavirus. To avert mass layoffs, the Danish government struck a deal with trade unions and employers’ associations in mid-March to cover 75% of lost wages for workers, up to €3,100 ($3,367) a month for three months (companies have to cover the remaining 25%).
In the UK, the government on April 20 launched a short-time work program, the Coronavirus Job Retention Scheme, that pays up to 80% of wages for furloughed workers, up to £2,500 ($3,112) a month until the end of June. The program is estimated to cost at least £42 billion, and received 67,000 claims from employers in its first half hour online.
One pitfall of wage subsidies is they preserve jobs that might have been lost even without the coronavirus. The OECD warned in a report on March 20 that policy makers should aim to avoid subsidizing jobs that “are unviable even in the long-term.” The IMF recommended this month that any wage subsidies have “clear phase-out mechanisms.”
The other key measure most European countries have adopted in the face of Covid-19 is to extend wage subsidies and other benefits to self-employed workers. These workers are more likely to fall through the social safety net because they lack a formal employer, but the coronavirus has also disrupted their businesses and livelihoods.
In the US, the closest thing to Kurzarbeit are work-sharing programs that offer partial unemployment benefits to workers with reduced hours in 27 states. These programs let employers reduce hours, saving money, while avoiding costs associated with layoffs like recruiting and retraining. Employees hang onto their jobs and employer-sponsored benefits while getting some compensation for lost hours. Work-sharing programs have never been particularly popular in the US, but Covid-19 may change that. Employer claims surged 57% on March 28 from the previous week, and were rising far more rapidly in hard-hit areas of the country like New York and Washington state.
As conversations commence about when and how European countries can gradually re-open, similar ones will likely be held over how long to maintain job protection plans and wage subsidies for workers. With so many nations having established emergency short-time work schemes, it’s worth wondering whether they’ll stick around as part of those countries’ labor markets. Martelli said it will come down to resources. “Short-time work schemes are quite costly,” he said, “so there are countries that can afford it and others that can’t.”