A German import to fight the economic impact of the coronavirus

A German import to fight the economic impact of the coronavirus
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As the novel coronavirus has become a global pandemic, Germany attracted attention earlier this month for President TrumpDonald John TrumpCuomo grilled by brother about running for president: 'No. no' Maxine Waters unleashes over Trump COVID-19 response: 'Stop congratulating yourself! You're a failure' Meadows resigns from Congress, heads to White House MORE’s alleged interest in bringing Tuebingen-based CureVac’s vaccine research to the United States. While such zero-sum actions would only worsen the ability of countries to formulate effective public health responses, there is another German achievement that Congress and the administration would be wise to emulate as they craft legislation to deal with the economic consequences of the crisis: Its Kurzarbeit system of federal government employment guarantees.

Kurzarbeit (roughly translated, “short-time work”) is a German government program first used during the 2008 financial crisis that pays roughly two-thirds of an employee’s salary to a company that would otherwise be forced to resort to layoffs in the face of an economic downturn. By providing for staff to remain on the job (even at reduced hours and salary) Kurzarbeit benefits both employers and employees. Workers maintain a steady stream of income, while companies avoid losing the skills these workers have acquired and which are likely to be needed once an economic upturn arrives.

German firms – particularly its many successful small- and medium-sized ones that are family owned – like to take a long-term view of what makes them profitable. Part of that business culture is seeing employees as an investment. Kurzarbeit is an attractive option because by helping companies to side-step layoffs of workers whose skills they have fostered, these firms are spared the need to devote resources to identifying and training new workers once a recovery is underway.

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In announcing the new German government measures to combat COVID-19, Finance Minister Olaf Scholz said on March 13 that “this is the bazooka, and we will use it to do whatever it takes.” One of these steps is a decision to extend the Kurzarbeit program, including loosening eligibility requirements so that only 10 percent of a firm’s employees need to be affected to trigger short-time work payments, and extending the compensation to temporary and agency workers. 

Kurzarbeit lends itself especially well to the kind of combined supply-side and demand shock that the U.S. and global economy are experiencing as a result of the coronavirus outbreak. Whether of the monetary variety (the Federal Reserve’s recent reduction of interest rates to near zero) or the fiscal (the payroll tax holiday favored by President Trump) traditional demand-side stimulus does not enjoy its usual effectiveness when the closure or severe reduction in service of shops, restaurants, airlines, professional sports and entertainment deprives consumers of ways to boost demand in the economy. While necessary from a public health perspective, these measures are leading to a severe contraction in the supply of goods and services.

Including Kurzarbeit provisions in the next package of measures Congress and the White House consider to strengthen the resilience of the U.S. economy in the face of COVID-19 would help address this supply-side shock. By temporarily subsidizing the retention of workers, the U.S. government and private sector firms would in effect be working in tandem to complement the monetary and fiscal policy measures that may be sufficient during a more traditional demand-side shock with more targeted relief.

Kurzarbeit would, however, also help with the demand side of the equation. By allowing workers to stay on the job, they would maintain enough income to cover recurring costs for things like housing, food and health care, whose supply either will not or ought not be allowed to contract. Looking further ahead, it would help employees – who are also consumers – to accumulate enough income to help kick start the recovery once the country emerges from the current unprecedented conditions. 

Beyond its benefits for the kind of economic hardship the country faces today, Kurzarbeit is a reminder of the importance of a skilled workforce for economic, and especially manufacturing, success. While it lags in the data-driven economy, Germany maintains considerable industrial strength. Through its extensive government-mandated apprenticeship programs, German workers benefit from a rigorous and hands-on dual-track skills and education curriculum. Companies themselves also devote considerable resources of their own to maintain and update their employees’ high levels of training.

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Not only in times of economic crisis but once conditions return to normal U.S., policymakers would do well to devote more attention to the role of a skilled workforce to responding to global economic competition. 

If the Trump administration really wants to help Americans fight the novel coronavirus, Kurzarbeit is the German import worth having.  

Peter S. Rashish is senior fellow and director of the Geoeconomics Program at the American Institute for Contemporary German Studies at Johns Hopkins University.