Protecting Jobs: A Lesson From Germany

Germany’s active labor market policy has enabled it to keep unemployment at a relatively stable rate while unemployment in other countries, including the United States, has risen sharply during the global economic crisis. While unemployment in Germany is currently around 8 percent and is averaging slightly lower than it was in May 2007, in the United States the unemployment rate is 9.4 percent and moving higher.

Why does Germany, which usually has a higher unemployment rate than the United States, now have lower unemployment? One reason, according to the Economic Policy Institute, is a “short work” program that encourages employers not to lay off workers. If an employer’s production falls by 10 percent or more, the government will pay the employer 67 percent of a worker’s salary (60 percent for workers without children) if the employer keeps the worker on payroll.

This policy, along with a “cash-for-clunkers” program, has meant that, as of June 1, Germany had not lost a single full-time job in auto manufacturing, according to German Labor Minister Olaf Scholz. By comparison, 92,500 American auto manufacturing workers have lost jobs in the last 24 months. The Big Three U.S. automakers and their suppliers have closed plants and dramatically reduced production, resulting in a loss of 354,000 jobs in U.S. auto and auto parts manufacturing over the past two years alone.