110 Years of Short-Term Work

Short-term work (Kurzarbeit), a dominant theme in European media and politics, is more prominent now than ever due to the Corona crisis. Many companies are struggling to survive because Corona has caused supply chains to collapse, turning corporate profits into losses.

When a company applies for short-term work, the Federal Employment Agency (Agentur für Arbeit) pays a part of the employees' lost wages in an attempt to stabilise the economy, reduce personnel costs, and prevent massive layoffs. The last time short-term work was as prevalent as it is now, was during the financial crisis of 2008 – but the history of short-term work goes back much further. Here is a brief overview:

The Beginning of Short-Term Work

Short-term work benefits (Kurzarbeitergeld) originated in Germany in 1910 as a part of the so-called “Potash Act” (Kali-Gesetz). Back then, there were production quotas which meant that mining plants were intermittently shut down. Government funds provided the employees with short-term welfare to bridge the shutdown periods.

As a response to the hyperinflation of 1923, this specific regulation was expanded in 1924 to a version called “short-term work support” (Kurzarbeiterunterstützung) which was similar to today’s short-term work benefits. In 1927, the legal framework for modern short-term work benefits became a part of the “Law on Employment Services and Unemployment Insurance” (Gesetz über Arbeitsvermittlung und Arbeitslosenversicherung).

During the economic miracle (Wirtschaftswunder) that followed WWII, short-term work was hardly relevant, but this changed shortly after. The first economic crisis hit in the 1960s, and short-term work was used to soften the blow – this led to another update to the legal framework. In recent years, the most prominent use of short-term work was without a doubt during the global financial crisis of 2008 and 2009.

Short-Term Work during the Financial Crisis

The German economy bounced back relatively quickly after the financial crisis while other countries in Europe and around the world struggled with the long-term effects and sometimes, follow-up economic crises emerged. 2009 in Germany was characterised by rising unemployment figures and negative economic growth, but in 2010 this trend was immediately corrected – one reason for this swift recovery was short-term work benefits.

Thanks to the relief in wage costs from the Federal Employment Agency (Agentur für Arbeit), unemployment due to the crisis was kept relatively low. Although more than 1.1 million employees were on short-term work at the crisis's peak in 2009, this measure prevented even higher unemployment numbers. With short-term work proving to be extremely successful, it is surprising that there is hardly anything that compares to it in other countries.

The Corona virus is putting short term work to the test more than anything else has done before. We have so far been successful in keeping Corona’s effects on unemployment low, unlike in some other countries such as the United States.

The Corona Crisis and Short-Term Work

Figures released by the Federal Employment Agency (Bundesagentur für Arbeit) show that by June 2020, 12 million employees had already claimed short-term work benefits and 50% of German companies applied for short-term work – this trend continues to rise. Although the unemployment rate in May 2020 was 1.2% higher than the previous year, it is clear how much short-term work has helped soften the effects of Corona on the labor market. In comparison, more than 30 million people lost their jobs in the USA due to the Corona virus and lack of an option that is similar to short-term work. Luckily, short-term work is deeply rooted in Germany’s economic history and saved us from this scenario.

The period in which one can claim short-term work benefits was extended until the end of 2021 which has already prevented countless people from losing their jobs. New temporary regulations also increased the percentage of net salary awarded after the third and sixth months receiving short-term work benefits. Employees with children receive an additional 7 percent in benefits each month.

European culture is suffering because of Corona as most cultural facilities must remain closed – state-owned cultural facilities, on the other hand, have fewer hardships since they’re still being financed by the government. Meanwhile, freelancers working in local culture are fighting for their lives.

There are other ways that the government can intervene in times of crisis. Two of the best-known wage replacement benefits (Entgeltersatzleistungen) are transfer short-term work benefits (Transferkurzarbeitergeld) and seasonal short-term work benefits (Saison-Kurzarbeitergeld) which also help to prevent layoffs.

Short-Term Work in Switzerland – A Look at Another European Country

Short-time work is most common in countries where in-company training is very intensive and important. Companies that have invested a lot of time and money to educate their employees are reluctant to forego the gains of this investment; therefore, they are more willing to keep their employees, even during challenging times. Switzerland’s dual system of education is a prime example of this observation. Switzerland has similar benefits called “short-term work compensation” (Kurzarbeitsentschädigung) which only slightly differs from Germany’s short-term work.

Did you receive short-term work benefits? File your tax return today!