Employment and Unemployment in the Recent Recession: Some German Institutions Revisited ICRIER Workshop New York University’s Stern School of Business.

Employment and Unemployment in the Recent Recession:

Some German Institutions Revisited

ICRIER Workshop New York University’s Stern School of Business and the World Bank on “Employment – Global and Country Perspectives” at New York University,

September 26 and 27, 2011

Prof. Dr. Lutz Bellmann

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Change of unemployment during the global economic crisis 2008/09

Source: Verick 2010

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Agenda

1. Introduction

2. The German labor market in an international context

3. The selectivity of the 2008/09 crisis on the German economy

4. Institutional background

5. Empirical analysis

6. Discussion and conclusions

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2. The German labor marketin an international context

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Co-movement of output and employment 2008/09

Source: Bell and Blanchflower IZA DP 4455 (2009) from OECD Main Economic Indicator and own calculations.

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Change of the number of young unemployed and the total number of unemployed (compared with previous month)

Source: German Federal Employment Agency

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Change in the number of employed and unemployed in Germany

Change in the number of

employed unemployed

March 2008 – March 2007 +1.7 % -15.0 %

March 2009 – March 2008 +0.3 % +2.2 %

Feb. 2010 – Feb. 2009 -0.3 % +2.6 %

March 2010 – March 2009 +0.2 % -0.5 %

Source: Official statistics from the Federal Employment Agency

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Change in the number of young unemployed in Germany

West East Total

March 2008 – March 2007 -17.9 % -14.6 % -16.7 %

March 2009 – March 2008 +14.8 % -0.3 % +9.3 %

March 2010 – March 2009 -4.0 % -10.9 % -6.7 %

Source: Official statistics from the Federal Employment Agency

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3. The selectivity of the 2008/09 crisis on the German economy

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Proportion of establishments (within selected industries) affected by the global crisis and employment development (from 2008 to 2009).

Proportion of Establishments Affected by

the Global Crisis

Employment Development (between

2008 and 2009)Manufacturing industry 0.45 -0.03- Automotive 0.52 -0.06- Chemicals 0.45 -0.03- Food 0.19 +/-0- Mechanical engineering 0.61 -0.03Construction 0.24 -0.01Hotels and restaurants 0.22 0.02Banking and insurance 0.12 +/-0Wholesale and retail 0.24 +/-0Additional service activities 0.20 -0.01Temporary employment agencies 0.66 -0.34Total 0.27 -0.01

Source: IAB Establishment Panel Surveys 2008 and 2009.

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4. Institutional background

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Characteristics of working time accounts

stabilize employment temporary shifts in working time do not trigger

wage adjustments (Bellmann/Gerner 2011) insurance against job and earnings loss for

employees employer save overtime premia during the expansion phase before the crisis

balances increased often part of PECs

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Percentage of companies with working time accounts (2009)

EU- 27

Netherlands

Czech Republic

Germany

Sweden

Denmark

Finland

0% 10% 20% 30% 40% 50% 60% 70% 80%

0.38

0.4

0.46

0.5

0.57

0.58

0.74

Source: European Foundation for the Improvement of Living and Working Condittions (2009) and own calculations.

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Characteristics of PECs

increase of a threat of severe employment loss employees concessions: working time, monetary,

organizational and further training measures employers‘ pledges: employment and investment

gurantees Works‘ councils gain new tasks and responsibilities

(flexibility and management functions) wider changes in the process and structure of

collective bargaining inherent structural asymmetry

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Employees’ concessions negotiated in PECs in 2006 (in percentage of establishments with PEC (I)

Concessions

with working time measures 92

with monetary measures 80

both 73

only working time measures 20

only monetary measures 7

total 100

Source: Ellguth and Kohaut (2008)

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Employees’ concessions negotiated in PECs in 2006 (in percentage of establishments with PEC (II)

working time measures (multiple answers)- working time accounts 53- reductions in the use of overtime 41- working time extensions without pay 37- working time extensions with pay 27- early retirement 20- additional part-time work 13- reductions of working time 12- other working time measures 28

Source: Ellguth and Kohaut (2008)

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Employees’ concessions negotiated in PECs in 2006 (in percentage of establishments with PEC (III)

monetary measures (multiple answers)- reduction of bonuses and fringe benefits 62- delay of scheduled wages increases 38- base wage reductions 29- other monetary measures 26- reductions of overtime wage premia 24- offsetting scheduled wage increases against wages above collectively agreed wage scale

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- conversion of fixed wages elements into variable 19- entrants’ wage reductions 14organizational measures 9additional training 24

Source: Ellguth and Kohaut (2008)

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The loss of work must be due to economic reasons (not structural ones) and unavoidable.

The employment contract must be maintained. The firms are obliged to notify the estimated loss of work to the

local employment agency. The Federal Employment Agency covers 50 percent (1st – 6th

month) and 100 percent (7th – 24th month) of the contributions to social insurance for the loss of work.

In case of training on the job during the loss of work, the Federal Employment Agency covers 100 percent of the contributions. Under certain conditions the costs of the training measures can be reimbursed up to 100 percent.

Requirements for short-time working allowance

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5. Empirical analysis

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Data and descriptives German IAB Establishment Panel Survey

since 1993 in West Germany since 1997 also in East Germany annual survey of 16,000 establishments face-to-face interviews response rate over 85 % all establishment sizes and sectors covered linked with the employment statistics register

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Methoddifference-in-difference estimation

N – number of employeesC – 1 if firm is subject to the crisis in 2009; 0 elseT – time dummy

i – establishmentx – vector of control variablesγ, β – vectors of regression coefficientsε – error term

ititiiit xTCTCN 200932009210)log(

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Employment change

Non-crisis plants (1)

Crisis plants (2)

Difference (2)-(1)

06/07 0.006 0.013 0.008

07/08 -0.002 0.017 0.019***

08/09 -0.013 -0.065*** -0.052***

Taken from estimates of Equation (1). Own calculations based on the IAB Establishment Panel Data Survey 2006-2009. For the detailed regression results see table A3 appendix.*/**/*** indicates significance at the 10 /5 /1% level.

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Estimated effects of WTA, PECs and STWA on the number of employees (2009)

without respective institution

with respective institution

difference

WTA -0.049*** -0.068** 0.019

PECs -0.057*** -0.015 0.042***

STWA -0.057** -0.011 0.046***

Source: IAB Establishment Panel Survey 2006-2009Note: Also included are the same control variables as for the estimations presented in Table p.22. The analysis is restricted to plants affected by the crisis.***, **, * significant at 1 %, 5 %, 10 %-level.

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6. Discussion and conclusions

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Main empirical results (I)

1. Employment losses 2008/09 concentrated on mechanical engineering, automotive and chemicals industries

2. Companies affected by the crisis exhibit decline of employment approx. 6 percent

3. Incidence of WTA increased before, of STWA and PECs during the crisis

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Main empirical results (II)

4. Impact of WTA, STWA and PEC on employment significantly positive (in comparison to non-crisis plants)

5. Thus, during the global crisis 2008/09 the reputation of public policy makers and collective bargaining partners improved considerably.

6. In the case of WTA and STWA the success may be due to the “short and deep” character of the crisis. A PEC is an instrument which has not only a short but also a longer perspective.

Thank you for your attention!

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