October 31, 2020

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Explaining Kurzarbeit, or Saving Jobs the German Way

3 min read
1. How does Kurzarbeit work? Businesses facing a temporary and unavoidable shortfall of orders due...

1. How does Kurzarbeit work?

Businesses facing a temporary and unavoidable shortfall of orders due to a crisis — as is the case for many due to the coronavirus — can apply for the government to subsidize workers’ salaries while activity is reduced or put on hold. Kurzarbeit — pronounced KUHRTS-ahr-bite, and loosely translated as “short-time working” — typically covers 60% of lost net wages, which rises to 67% for people with children, and can be increased even further the longer it lasts. That’s more generous than what’s on offer to furloughed workers in the U.S. and elsewhere. Companies are still responsible for paying workers and must apply to get reimbursed by the state. The German government has expanded the program to include contract workers and cover social insurance contributions. Originally intended to run for 12 months, eased conditions for accessing the program were extended through the end of 2021.

2. Is the program popular?

Though smaller companies say it isn’t perfect — as it assumes they have the liquidity to cover personnel costs upfront — Germany’s approach has received frequent praise. It kept about half a million people employed during the global financial crisis, the Organization for Economic Co-operation and Development reported in 2009. Germany’s labor minister says it is saving millions this time around and helping to reinforce demand, and has pushed back against politicians who worry people might get used to not working.

3. How often is it called on?

German companies, particularly manufacturers, make routine use of Kurzarbeit even when there’s not a global economic crisis going on. Companies can use it to offset seasonal production swings, such as bad weather affecting construction. Under special circumstances, it can even be used by companies undergoing restructuring to prevent sudden layoffs.

4. How much is it being used now?

In June, there were about 5.4 million people receiving the benefits, down from a high of 6 million in April, according to preliminary data by the Federal Labor Agency. The number seems to have decreased further through August, as estimates by the Munich-based Ifo Institute for Economic Research suggest. Still, some 9,000 companies applied for Kurzarbeit in August. Compare that to 2019, when an average of 1,300 companies applied for support each month. Big names including Volkswagen, BMW, Daimler, sports-apparel maker Puma and airline Lufthansa have all made use of the program and in some cases continued to do so in late 2020.

5. Do other countries offer something similar?

France, Italy, Spain, Belgium, and the Netherlands are among other European nations that allow distressed companies to tap government funds to pay salaries in periods when they have little or no income. Many pledged to bolster those programs with additional funds or were discussing extensions. To help governments pay for policies that preserve employment, the European Commission was ready to loan up to 100 billion euros ($117 billion) to member states. Canada also provides income support to people on a reduced work week, with a well-established program that has helped during previous economic hardships. With the pandemic causing extraordinary economic pain, other countries have moved to join the club.

6. Who else has signed on?

Sweden and Denmark introduced support measures specifically in response to the coronavirus, with Denmark’s aid program paying partial wages for 270,000 people for varying periods over its extended five-month duration. (Nordic populations, those in Denmark, Finland, Iceland, Norway and Sweden, rely on generous welfare states that ensure those dropping off payrolls still get monthly support.) In the U.K. the government made an unprecedented move to cover as much as 80% of salaries of workers whose jobs were at risk, and new options were being studied to replace the program after the end of October.

7. Does the U.S. have anything like this?

There is a program with some similarities, but it’s administered on a state-by-state basis, is less flexible and isn’t as widely used. Furloughed employees in the U.S. typically go without pay but retain access to benefits like health insurance. Under the stimulus package signed into law by President Donald Trump, people being paid unemployment benefits through their state received an additional $600 per week from the federal government through the end of July. The stimulus law also made more workers eligible for unemployment benefits, including the self-employed. Congress was deeply divided on ways to extend the program as the November presidential election approached.

(An earlier version of this story misspelled Kurzarbeit in the headline.)

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