Innovation Blog

‘KURZARBEIT’: German Bureaucrats as World-Class Innovators

By Shlomo Maital

Dec. 9/2009

    As leaders and experts pronounce the end of the global recession worldwide, an army of workers who have lost their jobs and may never regain them are bitter and angry.  In America,  the rate of unemployment fell slightly in November to 10 per cent, but the number of long-term unemployed rose by 293,000 to 5.9 million, and the economy lost jobs for the 23rd straight month.  In the 30-member OECD (Organization for Economic Cooperation and Development), the average rate of unemployment is 8.5 per cent.  In Spain, it is a staggering 19 per cent, and the I.M.F. says it will reach 20 per cent in 2010.

    Jobs continue to lag behind the economy. The reason is simple.  Businesses reacted to the global downturn by shedding workers and boosting productivity.  As the global economy recovers, those productivity gains mean it is not necessary or profitable to resume hiring.   The same workers can produce more stuff.  Why hire more of them?  In America,  in Q3 2009,  non-farm labor productivity rose by a startling 8 per cent (annualized)  — more than half coming from a sharp fall in hours worked. 

   What can nations do to mitigate the bad news — unemployment — that stems directly from good news — higher productivity growth? 

      A surprising source came up with a plan that works — German bureaucrats.  This nation of 80 million is not renowned for creative thinking.  Yet its plan, known as kurzarbeit (shortened work hours), has succeeded.  In this plan, workers whose hours have been cut due to the recession have their pay supplemented by the government.  In the plan,  companies avoid firing workers and instead slash their hours by half;   government supplements these workers’ salaries up to 2/3 of their former level, and more important, pays all the social benefits.   That way, companies save half their wage bill, workers keep their jobs and income, and continue spending, bolstering the economy.  Germany’s unemployment rate is 7.7 per cent, well below the OECD average and far below America’s 10 per cent.   Some 1.4 million workers have benefited, and a recent report states that half a million jobs were saved.

    The cost of the plan:  a modest 5.1 b. euros a year.  Compare that with America’s $ 1.2 trillion fiscal stimulus plan, that funneled $180 b. to bail out AIG alone, and which had very little impact on jobs.  President Obama is now desperately searching for ways to create jobs. 

     The kurzarbeit  plan is vital for Germany, because as the world’s largest exporter (now tied with China), Germany’s economy is built on mid-sized industrial companies with skilled experienced labor.  Dump that labor, in a recession, and you may not get it back in the upturn. 

     Will it work for other countries, like America?

     Probably not.   In order to save industrial jobs, you have to have them in the first place. America shipped its industrial jobs to Asia in the 1980’s and 1990’s.  Getting them back, a vital goal, will be a thousand times harder than it was giving them away to China.