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Labor Demand During the Crisis: What Happened in Germany?

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  • Olga Bohachova
  • Bernhard Boockmann
  • Claudia M. Buch

Abstract

In Germany, the employment response to the post-2007 crisis has been muted compared to other industrialized countries. Despite a large drop in output, employment has hardly changed. In this paper, we analyze the determinants of German firms’ labor demand during the crisis using a firm-level panel dataset. Our analysis proceeds in two steps. First, we estimate a dynamic labor demand function for the years 2000-2009 accounting for the degree of working time flexibility and the presence of works councils. Second, on the basis of these estimates, we use the difference between predicted and actual employment as a measure of labor hoarding as the dependent variable in a cross-sectional regression for 2009. Apart from total labor hoarding, we also look at the determinants of subsidized labor hoarding through short-time work. The structural characteristics of firms using these channels of adjustment differ. Product market competition has a negative impact on total labor hoarding but a positive effect on the use of short-time work. Firm covered by collective agreements hoard less labor overall; firms without financial frictions use short-time work less intensively.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3625.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3625

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Keywords: labor demand; economic crisis; short-time work; financial frictions; labor market institutions; employment adjustment;

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  1. Martin Dietz & Michael Stops & Ulrich Walwei, 2010. "Safeguarding Jobs through Labor Hoarding in Germany," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 61(Supplemen), pages 125-166.
  2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
  3. Wolf Heinbach, 2007. "Wages in wage-setting regimes with opening clauses," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, Springer, vol. 1(3), pages 233-245, December.
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  5. Muendler, Marc A & Becker, Sascha O., 2006. "The Effect of FDI on Job Separation," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt28h3p82z, Department of Economics, UC San Diego.
  6. Buch, Claudia M. & Lipponer, Alexander, 2007. "Volatile multinationals? Evidence from the labor demand of German firms," Discussion Paper Series 1: Economic Studies 2007,22, Deutsche Bundesbank, Research Centre.
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  13. Burda, Michael C & Hunt, Jennifer, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8520, C.E.P.R. Discussion Papers.
  14. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  15. Oana Calavrezo & Richard Duhautois & Emmanuelle Walkowiak, 2009. "The Short-Time Compensation Program in France: An Efficient Measure against Redundancies?," Working Papers hal-00831348, HAL.
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Cited by:
  1. Jung, Sven, 2012. "Employment adjustment in German firms," Discussion Papers 80, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  2. Scholz, Theresa, 2012. "Employers' selection behavior during short-time work," IAB Discussion Paper 201218, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  3. Jan Babecky & Kamil Galuscak & Lubomir Lizal, 2012. "Firm-Level Labour Demand: Adjustment in Good Times and During the Crisis," CERGE-EI Working Papers wp468, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Sandra M. Leitner & Robert Stehrer, 2012. "Labour Hoarding during the Crisis: Evidence for selected New Member States from the Financial Crisis Survey," wiiw Working Papers, The Vienna Institute for International Economic Studies, wiiw 84, The Vienna Institute for International Economic Studies, wiiw.

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