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Germany — Reduced working hours distort the free labour market

03 December 2009

In spite of all sorts of horror scenarios whereby German unemployment might reach 4.5 or even 5 million, unemployment has not risen in November and the temporary employment sector is even up again. However, the policy of artificially keeping employees on by placing them on reduced working hour schemes (Kurzarbeit) where the state largely makes up the loss in income, is not viable for much longer, Die Welt writes.

There are now more than half a million employees on reduced working hours in Germany and the government has just extended the scheme into 2010. A simple calculation demonstrates that the country has a surplus of hundreds of thousands of workers supported and disguised by the reduced working hours schemes, which cost the taxpayer dearly and have increased production cost (Lohnstueckkosten) by 8% since the beginning of the economic crisis.

Such long-term subsidies prevent companies from adapting to the changes in demand, especially in the car industry where the double whammy of reduced working hours pay and the subsidy for scrapping old cars have created a very artificial environment.

Staffing Industry Analysts' short and medium term outlook for Germany published yesterday reflects these points and is available to members by clicking here



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