The United States, Germany, and Unemployment Remedies

Most of the press has been focused on the effort to extend the temporary payroll tax cut and unemployment benefits. Little attention has been paid to some other features included in that legislation. Annie Lowrey provided a New York Times article, Tax-Cut Bill Includes Updates to Jobless Benefits System, that informs us of some significant changes in the way unemployment will be addressed. 

Why might we need to make some changes? Consider a tale of two countries, the US and Germany.

Germany had been moving towards a lower unemployment rate and continued on through the Great Recession with hardly any noticeable effect. Its unemployment rate continued to fall. The US on the other hand saw its rate double and remain distressingly high. What is the difference between the two countries?

We have recently compared vocational training approaches in Job Training Programs: Here and in Germany. The US devotes few resources to job training, whereas Germany builds it directly into its basic education system, and receives considerable cooperation from industry in providing the type of training that industry actually needs. This may explain why Germany can maintain a lower unemployment rate, but it does not fully explain how it could respond to the rapid downturn in business when the Great Recession hit.

Christian Vits and Jana Randow provide us with some insight in a Businessweek article: The Price of Saving Jobs in Germany.

"Under the short-work, or Kurzarbeit, plan, companies can temporarily move employees onto shorter work schedules when demand is weak. The companies pay only for the hours worked, while the government provides up to 67 percent of the workers' remaining wages. The program supported up to 1.5 million employees at some 63,000 companies, according to the Federal Labor Agency."

The best way to control unemployment is by not letting it happen. A system that encourages companies to let workers go and then attempt to hire them back later is inefficient and expensive for both the employers and the employees.

The German’s also have available something called a "work-time account." With the acquiescence of the German unions, employers can have workers put in longer hours at the normal hourly rate in good times. This creates a work-time credit that employers can use in a downturn by eliminating those hours from the current work schedule. This protects the workers’ targeted earnings, and provides employers with considerable flexibility. For example:

"Trumpf, a maker of machine tools, electronics, and lasers, has such an agreement with its unions: Employees work up to 250 hours more than contractually agreed when business soars and up to 250 hours less when demand is low. When orders collapsed in November 2008, the Ditzingen-based manufacturer exhausted this 500-hour buffer, then switched about 3,200 of its 4,500 workers in Germany onto the government's short-work program."

It would seem that effective measures can be put in place when industry, workers, and legislators are willing to collaborate on finding solutions to long-term measures. Consider this comment:

"’It was our top priority to keep our core workforce and preserve knowledge and experience,’ says Trumpf Executive Vice-President Gerhard Rübling."

In the US a CEO would be criticized for carrying excess workers for any length of time. The rule here is to announce large employment cuts and watch the stock price go up.

So what changes are being made in the way unemployment is addressed in the US? Annie Lowrey provides this information.

"The bill, which passed Congress on Friday and President Obama has said he will sign, allows states to use unemployment insurance money for programs that help move the jobless back into the work force. Such programs, like Georgia Works, often offer employers wage subsidies for taking on and retraining jobless workers."

"The bill also requires states to reassess the eligibility of workers for their unemployment insurance — confirming, for instance, that a person receiving long-term benefits is actively searching for a job. That reassessment provides an opportunity to tailor career counseling and other re-employment services to the long-term jobless."

And most important of all:


"The bill additionally expands "work sharing" programs that can help reduce layoffs at big businesses. In effect, businesses would have the option of cutting the hours of five workers by 20 percent each, say, rather than laying off one worker. The business could then use unemployment insurance money to help supplement the workers’ wages to make up for the lost hours."

That sure looks a lot like the German program. Who says we can’t learn from others?

These changes are not likely to have dramatic immediate effects. The train has already left the station. They will be more important the next time we have a downturn. The sad thing is that they could have been put into effect years ago.