Germany Extends Successful Coronavirus Short-Time Work Scheme

• Flexible Kurzarbeit scheme extended with relaxed conditions
• “Short-time work” – A tried and tested program
• Benefiting business and the workforce
• Application levels down as economy picks up
• Industries benefiting from short-time work
• Retaining a skilled workforce for economic recovery

Flexible Kurzarbeit scheme extended with relaxed conditions

Germany is set to extend the Kurzarbeit (“Short-Time Work”) furlough scheme that protects businesses and jobs to the end of next year. To date, companies have signed up almost 12 million workers to the scheme, designed to protect jobs from the Coronavirus crisis lockdown (around six million employees have in fact utilized the scheme, with the remainder able to continue working unaffected).

The move, designed to safeguard jobs as the economy starts a gradual process of recovery, sees the relaxed short-time work conditions extended through to the end of 2021.

The previous qualification threshold of one third of employees with reduced working hours of more than 10 percent has been reduced to just 10 percent of employees, meaning more companies are eligible for the scheme. Companies are also able to do this across different company divisions or for the entire business. Moreover, the short-time allowance does not require that a negative working-time balance be accrued before payment of the short-time allowance.

According to German Finance Minister, Olaf Scholz, the decision sends out a clear message to businesses and the workforce that “we’ve got your back for the long haul in this crisis, so that no one is being let go without need.” The business community also welcomes the extension. “The Coalition committee extension of the period for which short-time work allowance is paid to 24 months is a positive signal for retailers who, as before, are still struggling with Corona-related loss of revenue“ said German Trade Association (HDE) CEO, Stefan Genth.

“Short-time work” – A tried and tested program

Germany moved quickly to introduce its Kurzarbeit furlough scheme to protect jobs and the economy from the Covid-19 pandemic. The scheme, based on a tried and tested program previously used during the 2008-2009 global financial crisis, compensates workers for lost earnings caused by temporarily being put on reduced working hours.

Federal Chancellor Angela Merkels’s coalition government also increased payment levels, with workers who have been furloughed receiving around 70 percent of lost earnings after four months, and around 80 percent of earnings after seven months where working hours have been reduced by more than 50 percent.

Benefiting business and the workforce

The relaxed eligibility conditions for short-time work aim to make the scheme more attractive to employers and employees alike.

Companies that have notified the Federal Employment Agency (FEA) of their wish to be included can apply on a month-to-month basis. Employers pay on the short-time allowance to their employees, for which they are reimbursed by the FEA. Participating employers will also receive a full refund of social security payments until the end of June 2021 (50 percent of the payments are generally reimbursable for the period July to December 2021). A full refund is made subject to employee level of qualification and eligibility for further training.

The main advantage of the scheme for employers is that skilled labor remains available to them once activity recommences, meaning that working hours can be increased or normal working hours reintroduced.

Employees receive a share of the net pay loss incurred, with childless employees receiving at least 60 percent and employees with children at home around 67 percent of lost net income. In cases of a working time reduction of at least 50 percent, the allowance increases to 70 percent and 77 percent after a period of three months. After six months, the rates increase to 80 percent and 87 percent respectively. The allowance is tax-free and can be received for a statutory period of up to 24 months.

Application levels down as economy picks up

For the period March to May, companies with 11.8 million employees filed for short-time work compensation. Short-time registration levels increased sharply in March and April and perhaps can be best seen as the upper uptake limit. This however does not mean that all of these people end up on the scheme. According to provisional FEA data, more than 5.3 million people actually received the short-term allowance in June, compared to over 5.9 million in April of this year. Economic activity in Germany has been picking up again since June, resulting in significantly reduced Kurzarbeit application levels.

Industries benefiting from short-time work

During the lockdown in March and April, companies in nearly all sectors made applications to the program, with the retail and food & beverage sectors most affected by the restriction on movement. FEA data also shows that most applications during the period May to August were made in the machinery sector, followed by the automotive industry. As of July, most applications were made in the country’s manufacturing industries.

Retaining a skilled workforce for economic recovery

Furlough schemes like Germany’s successful short-time work program are most typically found in countries where a premium is placed on on-the-job training for the creation of a highly skilled workforce. Economies that invest in jobs and training for the creation of a stable labor market – like Germany’s – have greater motivation to invest in job retention in times of economic crisis or downturn.

Although Germany suffered a 10 percent slump in economic output for the second quarter of 2020, the short-time work scheme has spared the labor market from the worst effects of the crisis. In July, unemployment levels stood at 6.3 percent (equivalent to an annual increase of 1.3 percentage points). This is in marked contrast to the economic shockwaves felt in those economies largely reliant on unskilled labor.

The Covid-19 crisis has had a significant impact on the German economy, with economic recovery set be as long and difficult a process as it will be for the global economy.

By investing in the retention of its highly skilled workforce, Germany is ensuring that it is well placed to remain competitive in the midst of the ongoing international crisis.