Abstract

http://ssrn.com/abstract=1900060
 
 

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From 'Sick Man' to 'Miracle': Explaining the Robustness of the German Labor Market During and After the Financial Crisis 2008-09


Alexander Reisenbichler


George Washington University; affiliation not provided to SSRN

Kimberly J. Morgan


George Washington University

2011

APSA 2011 Annual Meeting Paper

Abstract:     
While many of the advanced economies are still reeling from the financial crisis and struggle with high rates of unemployment, Germany’s unemployment rate has improved to well below the OECD average despite experiencing the worst economic downturn since World War II. What explains this labor market robustness given Germany’s long-standing reputation as one of the “sick men” of Europe? Contrary to conventional accounts that emphasize employment protection legislation or government action (i.e. short-time work), this paper argues that actions by firms - embedded in ever-changing coordinative institutional structures - were most crucial in explaining this robustness. Firms chose to keep rather than shed labor; this strategy was induced by (i) the availability of a “toolkit” of flexible labor market instruments that had evolved incrementally over the past thirty years with the decentralization of collective bargaining; (ii) wage restraint and successful internal restructuring of firms during the past decade, fueling an export boom before the crisis. Firms thus had some margin for maneuver, using internal flexibility to protect their comparative advantage and skilled workers. We also show that past institutional changes driven by firms reflect a process of successful adaptation to external economic challenges, but did not undermine the nature and strength of Germany’s coordinated capitalism. The result is not a new German model that was purposefully designed; instead German firms slowly discovered new ways to cope with economic challenges.

Number of Pages in PDF File: 40

Keywords: Financial crisis, institutional change, varieties of capitalism, German miracle, collective bargaining, coordinated market economy, internal flexibility, wage restraint

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Date posted: August 1, 2011 ; Last revised: August 12, 2011

Suggested Citation

Reisenbichler, Alexander and Morgan, Kimberly J., From 'Sick Man' to 'Miracle': Explaining the Robustness of the German Labor Market During and After the Financial Crisis 2008-09 (2011). APSA 2011 Annual Meeting Paper. Available at SSRN: http://ssrn.com/abstract=1900060

Contact Information

Alexander Reisenbichler (Contact Author)
George Washington University ( email )
2121 I Street NW
Washington, DC 20052
United States
affiliation not provided to SSRN ( email )
No Address Available
Kimberly J. Morgan
George Washington University ( email )
2121 I Street NW
Washington, DC 20052
United States
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