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Distributional Consequences of Labor-demand Shocks: The 2008-09 Recession in Germany

  • Olivier Bargain
  • Herwig Immervoll
  • Andreas Peichl
  • Sebastian Siegloch

The distributional consequences of the recent economic crisis are still broadly unknown. While it is possible to speculate which groups are likely to be hardest-hit, detailed distributional studies are still largely backward-looking due to a lack of real-time microdata. This paper studies the distributional and fiscal implications of output changes in Germany 2008-09, using data available prior to the economic downturn. We first estimate labor demand on 12 years of detailed, administrative matched employer-employee data. The distributional analysis is then conducted by transposing predicted employment effects of actual output shocks to household-level microdata. A scenario in which labor demand adjustments occur at the intensive margin (hour changes), close to the German experience, shows less severe effects on income distribution compared to a situation where adjustments take place through massive layoffs. Adjustments at the intensive margin are also preferable from a fiscal point of view. In this context we discuss the cushioning effect of the tax-benefit system and the conditions under which German-style work-sharing policies can be successful in other countries.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3403.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3403
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