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1 April 2020

The COVID-19 crisis and short-time work in Germany in a European context

Short-time work (STW) is one of the most frequently used tools in times of economic crisis. It involves the temporary reduction of working time in order to secure employment and employees’ income, while at the same time enabling companies to reduce labour costs through state support.

During the economic and financial crisis in 2008/2009, Germany, in particular, benefitted from the widespread use of STW in containing unemployment despite a massive slump in economic output. It is therefore no surprise that in response to the current COVID 19 crisis, the use of STW may reach new record heights in Germany. The German government estimates that as a consequence of the COVID 19 crisis, the number of employees in short-time work could increase to approximately 2.35 million workers in 2020. In the last two decades, the number of workers affected by STW ranged between 100,000 and 200,000 per year.

However, a debate has recently emerged about the level of STW compensation, which currently amounts to 60 or (in households with children) 67 percent of the net pay. Against this background, German trade unions demand an increase of the statutory STW allowance to at least 80 percent of the net pay for the duration of the COVID 19 crisis. A just published study on Short-time compensation in the Corona crisis by Thorsten Schulten from the Institute of Economic and Social Research (WSI) in Düsseldorf and Torsten Müller from the ETUI illustrates that Germany is indeed at the bottom of the league among European countries with comparable regulations. The study furthermore illustrates that it is only through industry-level collective agreements negotiated by trade unions and employers’ associations that the German STW allowance reaches the same level as that of other European countries. In view of the low level of collective bargaining coverage in Germany, particularly in low-wage sectors, however, only a minority of employees actually benefit from these more beneficial arrangements.

Many European countries pay a significantly higher STW allowance of 80 to 100 percent. Of the 15 European countries included in the study, four countries (Ireland, Denmark, the Netherlands and Norway) pay an STW allowance that covers up to 100 percent of the loss of wages (see the graph below). In Sweden, the STW compensation varies between 92.5 and 96 percent depending on the extent of STW. In four countries (Austria, the UK, Italy and Switzerland), the STW allowance is 80 percent, with the lower wage groups in Austria receiving a higher premium of up to 90 percent. In Spain, Belgium and France, 70 percent of the loss of earnings is compensated, while in Portugal two thirds (66.66 percent) are paid. The STW allowance is paid on a net or gross basis, depending on the country. In countries where gross pay is compensated, the net payment can be even higher. This is the case in France, for example, where due to the tax exemption, a STW allowance of 70 percent the gross wage corresponds to a net compensation of 84 percent.

Graph: Short-Time allowance in percent of pay in selected European countries

Note: * In some industries the level is substantially higher where it is supplemented by collective agreements.
Source: Schulten and Müller: Kurzarbeitergeld in der Corona-Krise – Aktuelle Regelungen in Deutschland und Europa, WSI Policy Brief Nr. 38, 04/2020

In Germany, the loss of income resulting from STW is partially compensated for by industry-level collective agreements, which generally increase the statutory STW allowance up to a level between 75 and 100 percent of net pay. Examples of industries which in the context of the COVID 19 crisis have negotiated improved conditions include: the film industry (100% of net wages); metalworking (80-97%); chemicals (90%); automotive craft (KfZ-Handwerk) (90%); systems-based food catering sector (Systemgastronomie) (90%); textiles services (80%); and the wood and plastics industry (75%).

According to the authors Schulten and Müller, even though more and more industries have collective agreements to increase the STW compensation, they will only apply to a minority of the employees covered by the agreement. As Schulten and Müller point out, "particularly in the classic low-wage sectors, there are often no collectively agreed subsidies supplementing the statutory STW allowance". Furthermore, in low-wage sectors, collective bargaining coverage is usually particularly low. "However, low-income employees in particular cannot make ends meet for long with a net income loss of 40 percent. For the period of the COVID-19 crisis, the researchers therefore argue that Germany should increase its statutory STW allowance to at least 80 percent of the net pay, similar to the situation in other European countries and in particular Austria, with a higher increase of up to 90 percent for employees in the low-wage sector.

written by Torsten Müller, senior researcher at the ETUI

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