Working Paper: NBER ID: w17187
Authors: Michael C. Burda; Jennifer Hunt
Abstract: Germany experienced an even deeper fall in GDP in the Great Recession than the United States, with little employment loss. Employers' reticence to hire in the preceding expansion, associated in part with a lack of confidence it would last, contributed to an employment shortfall equivalent to 40 percent of the missing employment decline in the recession. Another 20 percent may be explained by wage moderation. A third important element was the widespread adoption of working time accounts, which permit employers to avoid overtime pay if hours per worker average to standard hours over a window of time. We find that this provided disincentives for employers to lay off workers in the downturn. Although the overall cuts in hours per worker were consistent with the severity of the Great Recession, reduction of working time account balances substituted for traditional government-sponsored short-time work.
Keywords: German labor market; Great Recession; employment; wage moderation; working time accounts
JEL Codes: E24; E32; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of hiring during the preceding economic expansion (J23) | missing employment decline during the recession (J64) |
| wage moderation (J38) | missing employment decline during the recession (J64) |
| working time accounts (J22) | moderating employment losses (J63) |
| lack of confidence among employers during the preceding expansion (E32) | hiring shortfall (J23) |
| hiring shortfall (J23) | mitigated layoffs during the recession (J65) |