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Germany Has Outperformed the U.S. Because of Work Sharing

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Thursday, 25 October 2012 04:04

Nicholas Kristoff uses his column to take a shot at Mitt Romney's economic policies. While the basic point, that austerity will lead to slower growth and higher unemployment, is correct, placing Germany as a basket case alongside the U.K. is not. While the U.K. has aggressively cut its budget deficit, Germany has not been as ambitious in this respect. (Its deficit had not been as large.)

Germany is primarily feeling the effects of budget cuts in the other euro zone countries, which are largely coming at its own insistence. In this case, Germany is in the same sort of situation as Ohio would be if Pennsylvania, Michigan and Ohio's economy all went into recession. The effect has been to sharply slow Germany's growth, although since the start of the recession, Germany's growth has been roughly equal to that of the United States (somewhat higher on a per capita basis). By contrast, the U.K. has seen sharply lower growth, its economy is still smaller than it was before the downturn began.

In spite of having comparable growth, the unemployment rate in Germany is more than 2 full percentage points below its pre-recession level. By contrast, the unemployment rate in the United States is 3.3 percentage points above its pre-recession level. The difference is that Germany encourages employers to reduce workers' hours rather than lay them off. The result is that many workers are putting in fewer hours, but still have jobs in Germany. The government makes up for most of the lost pay with money that would otherwise have gone to unemployment benefits.

While close to half of the states have work sharing programs as part of their unemployment insurance program, the take-up rate is very low. The Obama administration has attempted to increase take-up by having the federal government pick up the cost for the next two years. (This measure was attached to the bill that extended the payroll tax cut.) However, because most state budgets are so flush, there has been little interest in getting this money from the federal government.

 

[Addendum: The comment about flush state budgets is a joke. I can't imagine why cash strapped states wouldn't look to get free money from the Feds. I suspect inertia, which is by far the most important force in politics and policy.]

Comments (6)Add Comment
Here in Texas ...
written by David, October 25, 2012 8:36
Rick Perry won't take the federal money because "Texans don't need no help," Bubba don't like socialism, and I forget the third "reason."
flush?
written by tom, October 25, 2012 8:41
What? State budgets are flush? Am I not getting the sarcasm, or am I unaware of the facts?
...
written by Ron Alley, October 25, 2012 8:52
Is it really surprising that the take up rate is low? There is no direct incentive. Do we ask that corporations qualify for bidding on government contracts by adopting work sharing programs? Do the employers get any tax incentives for doing so?

Put yourself in the position of an employer with one product line that suffers from competitors who have off-shored production as well as from recession diminished demand. Wouldn't you be better off by letting a large portion of your workforce go and hoping to rehire workers later after the recovery kicks in and demand increases.

The picture you paint is one crony capitalism policies that benefit the 1% at the expense of the 99%.
National Insurance is more important that work sharing programs
written by Daniel Greenwood, October 25, 2012 12:03
Germany covers medical, pension, disability and training costs nationally. We make individual companies cover much more of those costs.

Benefits are largely per person, not per hour. Since those costs do not scale with hours worked, US employers have a powerful incentive to have a smaller number of employees working longer hours even if long hours lead to less efficient work.

German employers are free to take advantage of slack to reduce hours; US employers are much better off reducing headcount. This structural difference is probably more important than recession related government programs.
Bobo tries his hand at polls
written by David, October 25, 2012 3:15
Please forgive me for this non sequitur, but I always enjoy Beat The Press's takedowns of David Brooks when he tries his hand at economic analysis. Today, at the Princeton Election Consortium, Sam Wang skewers poor Bobo for trying his hand at poll analysis and for putting some spin on the result, which includes an analysis that other readers here might find informative as well: http://election.princeton.edu/...#more-7922
whowouldathought...
written by pete, October 25, 2012 4:51
German model requires individuals to work part time and get some unemployment assistance. Here we allow 99 weeks of pure unemployment with no part time work requirement (on the books that is....apparently there is ample underground employment). Why would this German system be preferred in the U.S. by the marginal worker who is staying home?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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