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Labor market: 7.3 million Germans in May according to Ifo figures in short-time work

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Dhe consequences of the corona pandemic on the German labor market are devastating. In May, for example, no fewer than 7.3 million employees were on short-time work in Germany. This is shown by exclusive calculations by the Munich Ifo Institute. “This number has never been so high,” says Ifo labor market expert Sebastian Link, looking at the statistics.

A glance at the Great Recession of 2009 is enough to classify it. During the economic downturn as a result of the financial crisis, at that time dubbed the biggest slump since World War II, just under 1.5 million people in Germany had to work short-time. The virus crisis now affects almost five times as many workers. In addition, unlike eleven years ago, the German economy is affected almost to its full extent.

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Source: WORLD infographic

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According to the Ifo figures, 2.2 million people have recently worked in industry. That was almost a third (31 percent) of all staff. The manufacturing sector not only lacked customers due to the quarantine measures, the supply chains were also sometimes interrupted. The effects were also severe in other economic sectors. In retail, companies had to send 1.3 million or 29.7 percent of their employees on short-time work.

Overall, in spring 2020 a good fifth (21.7 percent) of all employees could not receive income from gainful employment as usual. This is unique in the history of the Federal Republic.

Only a few industries can escape the downward pull

“In contrast to the financial crisis, when more than 80 percent of short-time workers were employed in industry, short-time work is used in the corona crisis across almost all sectors of the economy,” explains Ifo labor market expert Link. Very few industries managed to escape the downward pull. The number of short-time workers in the field of civil engineering remains relatively low. There, only around four percent of the employees had to reduce their working hours and suffer a drop in salaries. In absolute terms, however, 22,000 workers in the main construction sector were on short-time work in spring 2020.

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“Terrifying” balance sheet – – – – –

The comparison with the previous year shows the enormous stress that the corona lockdown put the German economy under: The year 2019 was anything but blinding for the industry, according to revised figures, the gross domestic product even shrank in the fourth quarter. Nevertheless, only around 374,000 people were in short-time work throughout Germany in 2019: by 2020 there will be almost 20 times as many.

The German concept of “short-time work” is now considered an international success model. With grants, companies are saved from the difficult decision of having to fire employees in difficult times because they are in an economic crisis. However, nobody was prepared for such a massive loss of economic output. At the end of March, when public life in Germany had largely come to a standstill, the Federal Government had expected just over two million short-time workers.

State supports companies

The short-time working model stipulates that employees receive 60 percent of their lost net wages. Whoever has at least one child gets 67 percent. Some companies continue to increase the amounts out of their own pockets. In addition, employers are reimbursed 100 percent of social security contributions for the hours they miss. There is also additional government aid for workers affected by Corona.

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Since June, the reference time short-time work allowance has been paid for a maximum of twelve months. According to the Federal Employment Agency, which is responsible for paying out the funds, it could cost millions of times to use the instrument in the end more than 30 billion euros. That would exceed the agency’s reserves. The state would then have to step in with additional funds.

At the same time, short-time work seems to be proving once again to be a recipe for success. So far, there has been no catastrophic rise in unemployment in this country. In April 2.6 million people were looking for a job in the Federal Republic. This corresponded to a quota of 5.8 percent. At the beginning of the year, five percent of the labor force was registered as unemployed.

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Source: WORLD infographic

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“Short-time work initially acts as a buffer against higher unemployment,” says Felix Hüfner, economist and labor market expert at UBS. While many industrial companies would make intensive use of short-time working, companies in the hospitality industry would find it increasingly necessary to lay off employees – “presumably because these are often smaller companies with lower financial reserves.” In April, 99.3 percent of all German circles had a higher rate Unemployment than twelve months ago.

Nevertheless, according to the counting method of the European Statistical Office, in Europe’s largest economy in the corona crisis, not even four percent of the people were unemployed. Other economies on the continent are suffering from much more severe turmoil in the job market. The unemployment rate in France could skyrocket to ten percent by the end of the year, and in Spain 20 percent of all people could be looking for a job.

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Such numbers are reminiscent of the Great Depression of the 1930s. In 1932, 5.6 million people were officially looking for work in Germany. Up to a quarter of all industrial workers had no job. Unlike at that time, however, measures such as short-time work benefits prevent the total economic crash.

A glimmer of hope can also be seen from the figures evaluated by the Ifo Institute. Originally, the companies had registered 10.1 million short-time workers in the Corona crisis. In the end, just under three quarters (71.6 percent) actually had to reduce their working hours. The growth figures also suggest that Germany is coming through the labor market relatively lightly – and with it the German labor market.

Hope for recovery

In the first quarter (January to March), the German economy shrank by 2.2 percent compared to the previous month, the Italian economy slumped by 5.3 percent in the same period, the French economy even by 5.8 percent. In the second quarter (April to June), however, the decline is likely to be more pronounced since the lockdown was fully effective here.

However, recent economic indicators are fueling hopes that there may be a recovery from the second half of the year. The stock exchange has already anticipated this countermovement. Most economists estimate that Germany’s gross domestic product will decrease by seven percent in 2020.

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The basis for the short-time worker figures for May are the economic surveys of the Ifo Institute, in which the proportion of short-time workers in companies was queried for the first time in May. The official short-time work figures of the Federal Employment Agency will only be received after a delay of several months.

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