Context

• Amid the all-round disruption caused to the economy by the novel coronavirus outbreak, a concern across the world is the possibility of loss of jobs. Various governments have unveiled various measures to address such concerns, and one of the most talked about is Kurzarbeit, Germany’s existing scheme that provides for partial compensation for a worker’s earnings in such situations, and now modified to account for the current crisis.

How the scheme works

• Kurzarbeit is German for “short-work”. The policy provides for a short-time work allowance, called kurzarbeitgeld, which partially compensates for lost earnings during uncertain economic situations. The policy was rolled out during the 2008 economic crisis while its origins date back as far as the early 20th century, before and after World War I.
• When companies face a loss of earnings due to unforeseen economic situations, they often need to cut back on their working hours or send some of their employees home. The Kurzarbeit scheme aims to address workers who are impacted by loss of income due to shortened work hours during such times. They can apply for short-term work benefits under the scheme, with the government stepping in to pay employees a part of their lost income. This helps the companies retain their employees instead of laying them off, and allows the latter to sustain themselves for a period of up to 12 months.
• The German cabinet is planning to extend the benefit of short-time work allowance by the first half of April through legislation. As of now, if a company sees a decline in orders as a result of the current economic situation, it can announce short-time work, provided that a minimum of 30 per cent of its workforce will be affected by lack of work. With the new legislation, the ceiling will be revised to 10 per cent of the workforce.

• Payment under Kurzarbeit is calculated on the basis of net loss of earnings. As per Germany’s Federal Agency for Work, short-time employees generally receive about 60 per cent of the flat-rate net wage, In case there is at least one child in the house of the short-time worker, he/she receives 67 per cent of the flat-rate net wage.

Previous instances

• The origins of the idea date back to the early 20th century, according to a 2011 paper in International Labour Review, titled ‘Short-Time Work: The German Answer to the Great Recession’. The trigger for such a policy was an amendment made to tobacco tax laws in 1909, which eventually led to less work in tobacco processing plants. Again, after World War I, short-time work benefit was integrated into the newly created unemployment benefit scheme for all sectors of industry in Germany.
• Germany’s use of Kurzarbeit during the 2008-2009 economic crisis has been cited as one of the reasons why the country was able to hold its unemployment rate to within 7.5 per cent even during the recession.

Source:IE