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What Explains the German Labor Market Miracle in the Great Recession?

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  • Michael C. Burda
  • Jennifer Hunt

Abstract

Germany experienced an even deeper fall in GDP in the Great Recession than the United States with little employment loss. Employers’ reticence to hire in the preceding expansion - associated in part with a lack of confidence it would last - contributed to an employment shortfall equivalent to 40 percent of the missing employment decline in the recession. Another 20 percent may be explained by wage moderation. A third important element was the widespread adoption of working time accounts, which permit employers to avoid overtime pay if hours per worker average to standard hours over a window. We find that this provided disincentives for employers to lay off workers in the downturn. While the overall cuts in hours per worker were consistent with the severity of the Great Recession, reduction of working time account balances substituted for traditional government-sponsored short time work.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2011-031.

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Length: 71 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2011-031

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Keywords: unemployment; Germany; Great Recession; short time work; working time accounts; Hartz reforms; extensive vs. intensive employment margin;

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References

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  1. Algunas herejías sobre salarios y productividad
    by Gabriel Burdín in Razones y personas: repensando Uruguay on 2012-09-20 16:03:00
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