Berlin Morning Future
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Best Practice 15 July Jul 2020 0703 15 July 2020

Kurzarbeit, here’s how Germany’s wage support scheme works

Workers in struggling companies can reduce their working hours and the government will pay most of their salary. Several other countries in Europe are looking at this model to deal with the impact of the Covid-19 crisis

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If you have never come across the word before, Kurzarbeit is just a German word that is tricky to pronounce. But, of course, there is more to it than that. Kurzarbeit literally means “short time work”.

Kurzarbeit is the German scheme whereby workers can greatly reduce their working hours and still receive their salary, which is then mostly paid by the government. The aim is to prevent job losses, creating greater chances of recovery for both employers and the broader economy. The scheme is similar to furloughing and to Italy’s ‘Cassa Integrazione’, but there are certain requisites.

It is, however, a temporary solution, and as such is valid for a limited time though struggling companies can apply it to the whole or part of their workforce. By reducing their working hours, employees accept that they will lose a part of their salary, which is financed by the government. So, instead of laying off workers, companies retain their human and intellectual capital. In addition to reduced or partly reduced salaries, employees also receive an allowance from the federal employment agency.

To qualify for Kurzarbeit, a company must be in financial difficulty or be facing temporary, unforeseeable circumstances. Employers cannot unilaterally switch their workers to Kurzarbeit, they can use the scheme only when it has been agreed collectively, with the works council or with the individuals concerned.

To qualify for Kurzarbeit, a company must be in financial difficulty or be facing temporary, unforeseeable circumstances.

Kurzarbeit has been in existence for around a century, but in Germany the scheme was widely applied during the 2008 financial crisis when more than 1.5 million workers benefitted from it. Economists credit the scheme with helping Germany to recover relatively quickly from the recession and avoid large-scale unemployment, which would otherwise have risen twice as much.

During the Covid-19 emergency, the German government further extended the scheme up to the end of 2020 and those companies where 10% (previously 30%) of their workforce are on reduced hours can be covered. From the fourth month, the allowance goes up to 70% (77% for those with children) and from the seventh month it rises to 80% (87% for those with children). The German government has also made the scheme available to temporary agency or contract workers.

According to the federal employment agency, by the end of April 10.1 million workers had applied for Kurzarbeit in Germany. This was a record number – at the height of the financial crisis, in May 2009, this figure had reached a peak of 1.44 million workers.

Today, many countries have turned their attention to Germany, introducing schemes to integrate incomes and save jobs in a similar way to Kurzarbeit. One such example is Denmark, where an agreement has been reached with unions and employee associations to cover 75% of salaries up to a maximum of 3,100 euro for three months, which is paid by the government. In the UK, the Coronavirus Job Retention Scheme covers up to 80% of furloughed workers’ salaries until the end of June. In the first half hour of the scheme launching, 67,000 workers had applied online.

One of the weaknesses of such support schemes is that they often save jobs that would probably have been lost even without the coronavirus crisis. A report by the OECD has indicated that governments should avoid subsidising jobs that are “unviable in the long-term”. The IMF has also recommended that all these schemes have “clear sunset clauses”.

As debate begins on the gradual reopening of countries, similar discussions will take place on the duration of income protection schemes and worker allowances. Seeing as so many countries have introduced emergency protection schemes, it remains to be seen if they will be retained as an integral part of domestic labour markets. Experts hold that much will depend on available resources: given that these schemes are costly, not all countries will be able to afford to keep them. And after having prevented job losses, as the Economist wrote, public policies will now be needed to create new jobs.

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