Employment and Unemployment in the Recent Recession: Some German Institutions Revisited ICRIER Workshop New York University’s Stern School of Business and the World Bank on “Employment – Global and Country Perspectives” at New York University, September 26 and 27, 2011 Prof. Dr. Lutz Bellmann

Change of unemployment during the global economic crisis 2008/09 2 Source: Verick 2010

3 Agenda 1. Introduction 2. The German labor market in an international context 3. The selectivity of the 2008/09 crisis on the German economy 4. Institutional background 5. Empirical analysis 6. Discussion and conclusions

4 2. The German labor market in an international context

Co-movement of output and employment 2008/09 5 Source: Bell and Blanchflower IZA DP 4455 (2009) from OECD Main Economic Indicator and own calculations.

Change of the number of young unemployed and the total number of unemployed (compared with previous month) 6 Source: German Federal Employment Agency

7 Change in the number of employed and unemployed in Germany Change in the number of employedunemployed March 2008 – March %-15.0 % March 2009 – March %+2.2 % Feb – Feb %+2.6 % March 2010 – March %-0.5 % Source: Official statistics from the Federal Employment Agency

8 Change in the number of young unemployed in Germany WestEastTotal March 2008 – March %-14.6 %-16.7 % March 2009 – March %-0.3 %+9.3 % March 2010 – March %-10.9 %-6.7 % Source: Official statistics from the Federal Employment Agency

9 3. The selectivity of the 2008/09 crisis on the German economy

Proportion of establishments (within selected industries) affected by the global crisis and employment development (from 2008 to 2009). 10 Proportion of Establishments Affected by the Global Crisis Employment Development (between 2008 and 2009) Manufacturing industry Automotive Chemicals Food0.19 +/-0 - Mechanical engineering Construction Hotels and restaurants Banking and insurance0.12 +/-0 Wholesale and retail0.24 +/-0 Additional service activities Temporary employment agencies Total Source: IAB Establishment Panel Surveys 2008 and 2009.

11 4. Institutional background

Characteristics of working time accounts  stabilize employment  temporary shifts in working time do not trigger wage adjustments (Bellmann/Gerner 2011)  insurance against job and earnings loss for employees  employer save overtime premia  during the expansion phase before the crisis balances increased  often part of PECs 12

Percentage of companies with working time accounts (2009) 13 Source: European Foundation for the Improvement of Living and Working Condittions (2009) and own calculations.

Characteristics of PECs  increase of a threat of severe employment loss  employees concessions: working time, monetary, organizational and further training measures  employers‘ pledges: employment and investment gurantees  Works‘ councils gain new tasks and responsibilities (flexibility and management functions)  wider changes in the process and structure of collective bargaining  inherent structural asymmetry 14

Employees’ concessions negotiated in PECs in 2006 (in percentage of establishments with PEC (I) 15 Concessions with working time measures92 with monetary measures80 both73 only working time measures20 only monetary measures7 total100 Source: Ellguth and Kohaut (2008)

Employees’ concessions negotiated in PECs in 2006 (in percentage of establishments with PEC (II) 16 working time measures (multiple answers) - working time accounts53 - reductions in the use of overtime41 - working time extensions without pay37 - working time extensions with pay27 - early retirement20 - additional part-time work13 - reductions of working time12 - other working time measures28 Source: Ellguth and Kohaut (2008)

Employees’ concessions negotiated in PECs in 2006 (in percentage of establishments with PEC (III) 17 monetary measures (multiple answers) - reduction of bonuses and fringe benefits62 - delay of scheduled wages increases38 - base wage reductions29 - other monetary measures26 - reductions of overtime wage premia24 - offsetting scheduled wage increases against wages above collectively agreed wage scale 24 - conversion of fixed wages elements into variable19 - entrants’ wage reductions14 organizational measures9 additional training24 Source: Ellguth and Kohaut (2008)

 The loss of work must be due to economic reasons (not structural ones) and unavoidable.  The employment contract must be maintained.  The firms are obliged to notify the estimated loss of work to the local employment agency.  The Federal Employment Agency covers 50 percent (1st – 6th month) and 100 percent (7th – 24th month) of the contributions to social insurance for the loss of work.  In case of training on the job during the loss of work, the Federal Employment Agency covers 100 percent of the contributions. Under certain conditions the costs of the training measures can be reimbursed up to 100 percent. 18 Requirements for short-time working allowance

19 5. Empirical analysis

20 Data and descriptives German IAB Establishment Panel Survey  since 1993 in West Germany  since 1997 also in East Germany  annual survey of 16,000 establishments  face-to-face interviews  response rate over 85 %  all establishment sizes and sectors covered  linked with the employment statistics register

21 Method difference-in-difference estimation N – number of employees C – 1 if firm is subject to the crisis in 2009; 0 else T – time dummy i – establishment x – vector of control variables γ, β – vectors of regression coefficients ε – error term

Employment change 22 Non-crisis plants (1) Crisis plants (2) Difference (2)-(1) 06/ / *** 08/ ***-0.052*** Taken from estimates of Equation (1). Own calculations based on the IAB Establishment Panel Data Survey For the detailed regression results see table A3 appendix. */**/*** indicates significance at the 10 /5 /1% level.

Estimated effects of WTA, PECs and STWA on the number of employees (2009) 23 without respective institution with respective institution difference WTA-0.049***-0.068**0.019 PECs-0.057*** *** STWA-0.057** *** Source: IAB Establishment Panel Survey Note: Also included are the same control variables as for the estimations presented in Table p.22. The analysis is restricted to plants affected by the crisis. ***, **, * significant at 1 %, 5 %, 10 %-level.

24 6. Discussion and conclusions

25 Main empirical results (I) 1. Employment losses 2008/09 concentrated on mechanical engineering, automotive and chemicals industries 2. Companies affected by the crisis exhibit decline of employment approx. 6 percent 3. Incidence of WTA increased before, of STWA and PECs during the crisis

26 Main empirical results (II) 4. Impact of WTA, STWA and PEC on employment significantly positive (in comparison to non-crisis plants) 5. Thus, during the global crisis 2008/09 the reputation of public policy makers and collective bargaining partners improved considerably. 6. In the case of WTA and STWA the success may be due to the “short and deep” character of the crisis. A PEC is an instrument which has not only a short but also a longer perspective.

Thank you for your attention!