How Germany detected a new version of flexicurity
PD Dr. Hilmar Schneider, IZA Bonn
„Balancing the labour market by 2020: Integrated strategies to deliver high levels of employment“
Policy Research Centre Work and Social Economy Leuven, December 12, 2011
2
Characteristics of the German labour market
Source: Bundesagentur für Arbeit; Eurostat; Statistisches Bundesamt; own computations
Employment 41.5 Mio. (10/2011)
Unemployment rate 6.4% (11/2011)
Long-term unemployed 32.1% (06/2011)
Self employed 10.9% (2010)
Minijobbers 11.9% / +6.0% (03/2011)
Temporary contracts 14.7% (2010)
0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5
60 65 70 75 80 85 90 95 00 05 10
Mio.
Total
West Germany East Germany
The Evolution of Unemployment in Germany
Source: Bundesagentur für Arbeit
1st oil crisis
2nd oil crisis
Globalization crisis
Dotcom crisis
Financial market crisis
4
Wage retention
Three reasons why Germany reached the turning point
The Labour market reforms 2003-2005
The German way of flexicurity
60 70 80 90 100 110 120 130
1990 1991
1992 1993
1994 1995
1996 1997
1998 1999
2000 2001
2002 2003
2004 2005
2006 2007
2008 2009
2010
Germany USA
France Canada
UK OECD
Italy
Reason No. 1: Wage retention
Source: OECD.Stat
Unit labour costs among the G7
6
Reason No. 2: The labour market reforms 2003-2005
Abolishment of incentives for early retirement Abolishment of unemployment assistance
Liberalization of temporal agency work
The evolution of the German employment rate of elderly compared to the G7
Source: OECD; Employment Outlook 2011
I J
D USA CND UK
F
10%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Germany UK Italy Canada
USA Japan France
8
– Abolishment of unemployment assistance has dramatically changed search behaviour of the unemployed and the employed
– Strong increase of pressure on unemployed to accept job offers – Job seekers not finding a new job within 12 (24) months may have
to reduce their assets
– Willingness of job seekers to compromise has remarkably increased – Inflows into welfare recipiency has not increased during the crisis
Reason No. 2: The labour market reforms 2003-2005
Reason No. 3: The German way of flexicurity
The abolishment of early retirement has reinforced employment protection
The reinforcement of employment protection has
increased the need for alternative forms of flexibility
10
Reason No. 3: The German way of flexicurity
– Employment protection regulations are as strict as always
– Forces German companies to working time flexibility instead of flexibility by „Hire and Fire“
– In previous crises employment protection was effectively abrogated by generous early retirement incentives
– The recent crisis was the first crisis in German post-war history, where employment protection fully came into its own
– Working hours credits and short-time work subsidies allowed firms to cope with the crisis without significant lay-offs
– As soon as the world demand for goods recovered, German exporters were in place with full capacities
– Without strict employment protection rules, German companies would have layed off their workers as they used to do in previous crises and as companies in other countries did
– Even with a recovery of economic growth, it would have lasted at least two years until employment growth would have followed production growth
– This time is the first time where production and employment are growing simultaneously
Reason No. 3: The German way of flexicurity
12
How employment protection and
short-time work subsidies are related
Short-time work subsidies became necessary during the crisis in order to protect firms from massive layoff costs
Without strong employment protection, firms are likely
to prefer layoffs instead of short-time work subsidies
The evolution of short-time work in Germany
Source: Bundesagentur für Arbeit 0
200.000 400.000 600.000 800.000 1.000.000 1.200.000 1.400.000 1.600.000
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
14
How employment protection and temporal agency work are related
The growth of temporaI agency work is reflecting the effective enforcement of employment protection
Temporal agency work also benefitted from the abolishment of the so-called synchronization ban Temporal agency work also benefitted from the
increased willingness of job seekers to compromise
0 100.000 200.000 300.000 400.000 500.000 600.000 700.000 800.000 900.000 1.000.000
1970 1975 1980 1985 1990 1995 2000 2005 2010
The evolution of temporal agency work in Germany
Source: Bundesagentur für Arbeit
16
How employment protection and occupational training are related
In general, strong employment protection increases the cost of hiring mistakes
Groups mostly affected:
low-skilled, unexperienced youth
Occupational training may effectively compensate
for the risk of hiring mistakes
The evolution of youth unemployment in Germany
Source: OECD Employment Outlook
UK
D I
CND USA
J F
5%
10%
15%
20%
25%
30%
35%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Germany UK* Italy Canada
USA* Japan France
18
Summary
– Germany has – by accident – detected a remarkably successful combination of flexibility and security
• Security by employment protection
• Flexibility by working time accounts, temporal agency work, temporary work and Minijobs
– Nevertheless, Germany is haphazardly about to destroy the conditions of this success model again:
• Strengthening of explicit minimum wages
• Strengthening of equal pay principle for temporal agency work
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