What Explains the German Labor Market Miracle in the Great Recession?

62 Pages Posted: 4 Jul 2011

See all articles by Michael C. Burda

Michael C. Burda

Humboldt University of Berlin - Faculty of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Jennifer Hunt

Rutgers University; McGill University - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Abstract

Germany experienced an even deeper fall in GDP in the Great Recession than the United States, with little employment loss. Employers' reticence to hire in the preceding expansion, associated in part with a lack of confidence it would last, contributed to an employment shortfall equivalent to 40 percent of the missing employment decline in the recession. Another 20 percent may be explained by wage moderation. A third important element was the widespread adoption of working time accounts, which permit employers to avoid overtime pay if hours per worker average to standard hours over a window of time. We find that this provided disincentives for employers to lay off workers in the downturn. Although the overall cuts in hours per worker were consistent with the severity of the Great Recession, reduction of working time account balances substituted for traditional government-sponsored short-time work.

Keywords: unemployment, Germany, Great Recession, short time work, working time accounts, Hartz reforms, extensive vs. intensive employment margin

JEL Classification: E24, E32, J6

Suggested Citation

Burda, Michael C. and Hunt, Jennifer, What Explains the German Labor Market Miracle in the Great Recession?. IZA Discussion Paper No. 5800. Available at SSRN: https://ssrn.com/abstract=1877613

Michael C. Burda (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
D-10178 Berlin
Germany
+49 30 2093 5638/50 (Phone)
+49 30 2093 5696 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jennifer Hunt

Rutgers University ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Leacock Building Room 443
Montreal, QC H3A 2T7
Canada
514-398-6866 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
48
Abstract Views
553
PlumX Metrics