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What's Behind the Miracle? The German Labor Market in the Great Recession / Michael Burda

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What's Behind the Miracle? The German Labor Market in the Great Recession / Michael Burda

  1. 1. What‘s behind the miracle? The German labor market in the Great Recession Presentation to SITRA participants Berlin, November 7 2012 Michael C. Burda - What is behind the7 November 2012 1 German labor market miracle?
  2. 2. Outline• Describing the miracle• Pinpointing the source of the miracle• Explaining the miracle• Can the miracle turn into a disaster?• Can Italy learn from Germany? Michael C. Burda - What is behind the7 November 2012 2 German labor market miracle?
  3. 3. Facts • Decline in GDP (Y) associated with the steep drop in international trade • Decline in hours worked (H) • What happened to employment (L)? • Decline in hours/employee (H/L) • What happened to wages and productivity? • Sectoral composition of output Michael C. Burda - What is behind the7 November 2012 3 German labor market miracle?
  4. 4. Michael C. Burda - What is behind the7 November 2012 4 German labor market miracle?
  5. 5. Michael C. Burda - What is behind the7 November 2012 5 German labor market miracle?
  6. 6. Michael C. Burda - What is behind the7 November 2012 6 German labor market miracle?
  7. 7. Michael C. Burda - What is behind the7 November 2012 7 German labor market miracle?
  8. 8. Extensive v. Intensive Margin Michael C. Burda - What is behind the7 November 2012 8 German labor market miracle?
  9. 9. Michael C. Burda - What is behind the7 November 2012 9 German labor market miracle?
  10. 10. Michael C. Burda - What is behind the7 November 2012 10 German labor market miracle?
  11. 11. : Germany Michael C. Burda - What is behind the7 November 2012 11 German labor market miracle?
  12. 12. Explaining the miracle• Short-time work (Kurzarbeit)• Concession bargaining (Arbeitszeitkorridore)• Working time accounts (Arbeitszeitkonten) with upper bounds and seniority• Wage moderation, the Hartz Reforms• Adjustment costs (high costs of layoffs) plus optimistic expectations, plus flexible temp work• …what was most important? Michael C. Burda - What is behind the7 November 2012 12 German labor market miracle?
  13. 13. Facts • Question: How important was short-time work (Kurzarbeit)? Answer: Important, but not significantly different from past recessions Michael C. Burda - What is behind the7 November 2012 13 German labor market miracle?
  14. 14. German unification and the collapse of the East German economy Michael C. Burda - What is behind the7 November 2012 14 German labor market miracle?
  15. 15. Facts • How important were flexible working time accounts (Arbeitszeitkonten)? Answer: Very Important, in a way significantly different from past recessions in Germany Michael C. Burda - What is behind the7 November 2012 15 German labor market miracle?
  16. 16. Cumulated Workers’ Working Time Account Balances in Germany, 1991-2010 Significant buildup of excess overtime hours and run-down after the crisis hit Michael C. Burda - What is behind the7 November 2012 16 German labor market miracle?
  17. 17. Facts• How important was outsourcing of work by way of temporary work agencies (the „cheap“ extensive margin)?Answer: Important. In Germany temporary agency work is performed by workers on normal legal contracts as employees of temporary work agencies. Firms (especially in manufacturing) use agency work to vary employment without varying their own head count, avoiding employment protection costs Michael C. Burda - What is behind the7 November 2012 17 German labor market miracle?
  18. 18. Temporary agency work, 2000-2010 2011: > 1 million! Die Zeit, 10.2.2011 Michael C. Burda - What is behind the7 November 2012 18 German labor market miracle?
  19. 19. Questions • Model suggests expectations are important • How important were they? Answer: Important! 1) Business expectations were unusually pessimistic in the years 2005-6, despite a typical output expansion and positive labor market developments (unemployment falling, employment rising) 2) Business expectations were unusually optimistic in the years 2008-9, despite the worst recession since the 1930s Michael C. Burda - What is behind the7 November 2012 19 German labor market miracle?
  20. 20. Ifo Index: Future expectations minus current situation15.010.0 5.0 0.0 1991 1996 2001 2006 2011 -5.0-10.0-15.0-20.0 Michael C. Burda - What is behind the 7 November 2012 20 German labor market miracle?
  21. 21. Germany, Michael C. Burda - What is behind the7 November 2012 21 German labor market miracle?
  22. 22. A recipe for beating the crisis? Working Time Accounts Short Temporary time work agency workers Michael C. Burda - What is behind the7 November 2012 22 German labor market miracle?
  23. 23. A recipe for beating the crisis? Working Time Accounts Increase in flexibility from the bottom up while maintaining social consensus Short Temporary time work agency workers Michael C. Burda - What is behind the7 November 2012 23 German labor market miracle?
  24. 24. Summary of main conclusions• The „miracle“ was achieved by a drop in hours per worker and in productivity per worker, and not by a reduction in labor force• Not unusual compared with previous recessions• About 60% of the „missing layoffs“ in 2008-9 can be explained by missing hires in 2005-8 (due to pessimistic expectations) and wage moderation• Working time accounts (Arbeitszeitkonten) increased the sluggishness of employment by increasing relative adjustment costs Michael C. Burda - What is behind the 7 November 2012 24 German labor market miracle?
  25. 25. Thank you for your attention! Michael C. Burda - What is behind the7 November 2012 25 German labor market miracle?

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