The document summarizes a presentation given by Michael C. Burda on the German labor market miracle during the Great Recession. It outlines that Germany was able to reduce hours worked per employee and productivity per hour rather than employment levels. It identifies several factors as important contributors, including extensive use of short-time work, flexible working time accounts, wage moderation, and temporary agency workers. The presentation concludes that working time accounts were very important as they increased the flexibility to adjust hours worked rather than employment levels in response to the economic downturn.

1. What‘s behind the miracle?
The German labor market in the Great Recession
Presentation to SITRA participants
Berlin, November 7 2012
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German labor market miracle?

2. Outline
• Describing the miracle
• Pinpointing the source of the miracle
• Explaining the miracle
• Can the miracle turn into a disaster?
• Can Italy learn from Germany?
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German labor market miracle?

3. Facts
• Decline in GDP (Y) associated with the steep
drop in international trade
• Decline in hours worked (H)
• What happened to employment (L)?
• Decline in hours/employee (H/L)
• What happened to wages and productivity?
• Sectoral composition of output
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German labor market miracle?

4. Michael C. Burda - What is behind the
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German labor market miracle?

5. Michael C. Burda - What is behind the
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German labor market miracle?

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German labor market miracle?

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German labor market miracle?

8. Extensive v. Intensive Margin
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German labor market miracle?

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German labor market miracle?

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German labor market miracle?

11. : Germany
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German labor market miracle?

12. Explaining the miracle
• Short-time work (Kurzarbeit)
• Concession bargaining (Arbeitszeitkorridore)
• Working time accounts (Arbeitszeitkonten) with
upper bounds and seniority
• Wage moderation, the Hartz Reforms
• Adjustment costs (high costs of layoffs) plus
optimistic expectations, plus flexible temp work
• …what was most important?
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German labor market miracle?

13. Facts
• Question: How important was short-time
work (Kurzarbeit)?
Answer: Important, but not significantly different from
past recessions
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German labor market miracle?

14. German unification
and the collapse of
the East German
economy
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German labor market miracle?

15. Facts
• How important were flexible working time
accounts (Arbeitszeitkonten)?
Answer: Very Important, in a way significantly different
from past recessions in Germany
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German labor market miracle?

16. Cumulated Workers’ Working Time
Account Balances in Germany, 1991-2010
Significant buildup of
excess overtime hours
and run-down after
the crisis hit
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German labor market miracle?

17. Facts
• How important was outsourcing of work by way
of temporary work agencies (the „cheap“
extensive margin)?
Answer: Important. In Germany temporary agency work
is performed by workers on normal legal contracts as
employees of temporary work agencies.
Firms (especially in manufacturing) use agency work to
vary employment without varying their own head
count, avoiding employment protection costs
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German labor market miracle?

18. Temporary agency work, 2000-2010
2011: > 1 million!
Die Zeit, 10.2.2011
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German labor market miracle?

19. Questions
• Model suggests expectations are important
• How important were they?
Answer: Important!
1) Business expectations were unusually pessimistic in
the years 2005-6, despite a typical output expansion
and positive labor market developments
(unemployment falling, employment rising)
2) Business expectations were unusually optimistic in
the years 2008-9, despite the worst recession since
the 1930s
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German labor market miracle?

20. Ifo Index: Future expectations minus current
situation
15.0
10.0
5.0
0.0
1991
1996
2001
2006
2011
-5.0
-10.0
-15.0
-20.0
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German labor market miracle?

21. Germany,
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German labor market miracle?

22. A recipe for beating the crisis?
Working Time
Accounts
Short Temporary
time work agency workers
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German labor market miracle?

23. A recipe for beating the crisis?
Working Time
Accounts
Increase in
flexibility from the
bottom up while
maintaining social
consensus
Short Temporary
time work agency workers
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German labor market miracle?

24. Summary of main conclusions
• The „miracle“ was achieved by a drop in hours per
worker and in productivity per worker, and not by a
reduction in labor force
• Not unusual compared with previous recessions
• About 60% of the „missing layoffs“ in 2008-9 can be
explained by missing hires in 2005-8 (due to
pessimistic expectations) and wage moderation
• Working time accounts (Arbeitszeitkonten) increased
the sluggishness of employment by increasing relative
adjustment costs
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German labor market miracle?

25. Thank you for your attention!
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German labor market miracle?