Short-time Work and Short-time Work Compensation. How International Firms Survive the Corona Pandemic

Table of content

1. Introduction

2. Fundamentals of the pandemic and of short-time work
2.1. Coronavirus spread and impact on the economy
2.2. Short-time work

3. How international firms survive the corona pandemic through short time work and short-time work compensation
3.1. Reasons for introducing short-time work during the corona crisis
3.2 Why new legal regulations are needed to increase short-time work compensation
3.3 New legal regulations

4 Conclusion

Bibliography

1. Introduction

In April, as a result of the corona pandemic, unemployment figures increased by 308,000 in Germany alone to a total of 2.65 million¹. Unemployment is expected to "climb to more than 3 million"².

The economy is virtually at a standstill, orders are stagnant, the population is at home and money is no longer flowing. Cancellations of trade fairs and large-scale events, and the decline in travel, are affecting the service sector, especially in the areas of logistics, trade, gastronomy and tourism. At the same time, foreign demand is dropping and international supply chains are being disrupted, which impacts production in Germany.

The corona pandemic is hitting companies hard and help is undoubtedly needed if jobs are to be maintained. One form of such help is short-time working. More than half of all German companies have announced short-time work.³

Introducing short-time work is known to safe companies and maintain jobs through difficult times like these. According to Anke Hassel, a professor of public policy at the Hertie School in Berlin, the policy "is one of the reasons why Germany recovered so quickly after the 2008-9 financial crisis."⁴

What exactly short-time work is, who it applies to and what requirements a company must meet, will be explained in this seminar paper.

The focus of this seminar paper will be on the use of short-time work as a way of saving companies against the background of the current corona pandemic. In this context, it is particularly important to find out what additional measures have been taken to help companies during this period and, in particular, how short-time work can be used to build a bridge for companies to survive this pandemic in the sea of economic consequences.

2. Fundamentals of the pandemic and of short-time work

2.1. Coronavirus spread and impact on the economy

The coronavirus (SARS-CoV-2) or COVID-19 is a viral disease that spreads mainly by droplet infection, e.g. by coughing or body contact.⁵ COVID-19 can run like a harmless cold, but can also be fatal.⁶ A distance of at least 1.5 meters significantly reduces the risk of infection and, together with regular hand washing, this protective measure is one of the safest methods of containment, the effectiveness of which has already been proven in studies.⁷

As a result of this corona virus the economy is breaking down. There is a high degree of uncertainty about the consequences because the further spread, the progress of the containment measures and the success of the support measures are unclear. Under the conditions that a part of the economic activity is expected to be absent for at least six weeks and then to have an equally long period of time to return to normality, a drastic decrease in real gross domestic product of 2.0 percent can be expected for 2020.⁸

2.2. Short-time work

In order to understand how short-time work is to be used as a way of helping in the corona crisis, the principles of this method need to be explained. It is also important to mention that principles of the concept of short-time work are different in various countries. In this seminar paper mainly the German version will be analyzed.

Definition:

“Short-time work is the temporary reduction of working hours with a corresponding reduction in pay.”⁹

The employment agency (Agentur für Arbeit) pays the short-time allowance as partial compensation for loss of earnings caused by a temporary reduction in work hours. This reduces the expenditure incurred by employers in connection with the employment of workers and enables companies to continue to employ their workers even if they lose a contract. In other words, the short-time working allowance helps to prevent job losses.¹⁰

Germany has had some form of the scheme for several decades but it is best known for the role it played during the 2008/2009 financial crisis, when it helped the German labor market avoid much of the damage inflicted elsewhere in Europe.

Germany's unemployment rate actually fell from 7.9% to 7% in the middle of that crisis, partly thanks to the scheme. At that time, around 1.5 million German workers had their wages subsidized by the mechanism, before returning to full-time work once the crisis had passed.¹¹

Since 1997, short-time work has been regulated by the German Social Security Code (SGB III, § 95 to § 111). The aim of short-time work is to avoid job reductions due to short-term, economic and operational emergencies and thus to maintain contractual relationships under labor law. This can be approved by application to the Federal Employment Agency, provided that all legal requirements are met. According to § 95 of the Social Security Code III (SGB), employees are entitled to short-time work compensation if

1. there is a considerable loss of working hours with loss of pay
2. the operational requirements are fulfilled,
3. the personal requirements are fulfilled and
4. the absence from work has been reported to the employment agency.

According to § 96 SGB III, a loss of working hours is considerable if

1. it is due to economic reasons or an unavoidable event
2. if it is temporary
3. f it cannot be avoided and
4. if in the relevant calendar month (entitlement period) at least one third of the employees employed in the enterprise are affected by a loss of earnings of more than 10% of their monthly gross salary.

Economic reasons are in this case, for example, if deliveries are not made and production had to be restricted. An unavoidable event also exists if, for example, companies are closed down as a result of government protective measures, as was often the case in the case of the corona pandemic. The Federal Employment Agency decides whether the conditions are met and then generally grants short-time work benefits for 12 months.¹²

The introduction of short-time working in a company requires the consent of the works council. If a company has no works council or collective agreement containing a short-time working clause, short-time working can only be introduced with the consent of the employees concerned. In some cases consent is already given by a clause in the employment contract. The employer can then introduce short-time work on this basis. If this is not the case, short-time work must be agreed on individually or in individual contracts.¹³

The granting of short-time working compensation requires that only a temporary work loss exists — meaning, short-time working compensation cannot be granted if the company is planning to close down. It must be foreseeable with a certain degree of probability that a return to full-time work can be expected after the longest possible period of receipt of short-time work compensation.¹⁴

In Germany, the legal short-time working allowance is 60 percent of net remuneration.¹⁵ According to SGB III, § 105, an increased short-time working allowance of 67 percent of net remuneration is paid if the employees concerned have children to care for. In some industries, there are also collective labor agreements that increase the short-time work compensation to up to 100 percent.¹⁶

Overall, however, only a minority of employees covered by collective bargaining agreements would receive a contractually agreed increase in addition to the short-time working allowance. In the low-wage sector in particular, the level of collective bargaining coverage is particularly low, so that not all employees can benefit from corresponding regulations, which will be discussed later.

From the employees' point of view, job security is the top priority. For this reason, in addition to the resources of economic and financial policy, targeted labour market policy measures are necessary to safeguard jobs. Since Germany in particular has had very good experience with the instrument of short-time work in the past, adjustments were made in the corona crisis to facilitate the procedure and some conditions in favour of employees and companies, which will be explained later.

3. How international firms survive the corona pandemic through short time work and short-time work compensation

3.1. Reasons for introducing short-time work during the corona crisis

If a company had to cut some jobs due to the crisis, it would face the long-term challenge of having to recruit new staff once the crisis phase is over. The instrument of short-time work gives companies the advantage of being able to resume their regular operations and economic activities with a qualified and fully trained workforce.¹⁷

The advantage of short-time working is that an immediate increase in working hours or resumption of normal working hours is possible if the order situation improves. The personnel is immediately available again. Short-time work thus immediately reduces the companies' costs.¹⁸

Introducing short-time work in this time is not only beneficial in many ways for the employers but for the employees as well. It is a better way than resorting to layoffs because jobs will be preserved and the resumption of work is possible in a flexible way. Like mentioned above, there are no long application-, hiring and training processes required and the trained specialists remain in the company. Employers should bear in mind that dismissals are bound to observe notice periods, while the person concerned is entitled to full pay, whether or not they are still employed. If a later dismissal is unavoidable after all, the short-time work does not affect the amount and duration of the unemployment- money.¹⁹

The Federal Employment Agency has made the application process as simple as possible and minimized the amount of information which has to be submitted. This ensures that the process is not too bureaucratic and lengthy. The benefit is normally paid to the employer within 15 working days after the application is submitted.²⁰

“No healthy company should go bankrupt due to corona, no job should be lost.”²¹ Federal Economic Affairs Minister of Germany Peter Altmaier said in a press release where he and Federal Finance Minister of Germany Olaf Scholz presented a comprehensive package of measures to mitigate the impact of the coronavirus. In this chapter, which is the main subject of this seminar paper, it will be shown how companies can survive the economic consequences of the corona pandemic by introducing short-time work.

In a survey of German companies conducted by the DIHK (Deutscher Industrie- und Handelskammertag e. V. - German Chamber of Industry and Commerce) on the influence of the coronavirus on sales in 2020, over 80 percent of around 15,000 companies questioned stated that they expected a decline in sales in 2020 as a result of the coronavirus. 26% of the entrepreneurs stated a decline in sales of between 25% and 50%. Likewise, 26% of those surveyed even expect a decline of more than 50% this year.²²

A major challenge here is, on the one hand, to preserve as many jobs as possible and, on the other, to cut costs in order to avoid insolvency and survive the crisis. This sounds contradictory at first, as personnel costs make up a large part of a company's expenditure. However, introducing short-time work compensation is a frequently used possibility to meet this challenge. Many companies have acknowledged this and announced short-time working during the pandemic.

[...]

¹ https://www.faz.net/aktuell/wirtschaft/corona-krise-warum-die-arbeitslosigkeit-in-deutschland-steigt-16753941.html, accessed on 04.05.2020.

² Cf. ebd.

³ Cf. https://www.spiegel.de/wirtschaft/unternehmen/corona-wirtschaft-50-prozent-der-deutschen-firmen-hat-laut-ifo-institut-kurzarbeit-eingefuehrt-a-352f77ad-761b-4109-bcad-98a7c0c1ecfb accessed on 09.05.2020.

⁴ https://www.dw.com/en/short-time-work-a-vital-tool-in-germanys-economic-armory-against-coronavirus/a-52952657, accessed on 20.06.2020.

⁵ Cf. https://www.quarks.de/gesundheit/medizin/corona-virus-das-wissen-wir/, accessed on 14.05.2020.

⁶ Cf. https://www.dzif.de/de/glossar/coronavirus, accessed on 09.05.2020.

⁷ Cf. https://www.quarks.de/gesundheit/medizin/corona-virus-das-wissen-wir/, accessed on 09.05.2020.

⁸ IAB-KURZBERICHT, 2020. p,1.

⁹ https://www.lathamgermany.de/2020/03/legal-update-covid-19-how-germany-is-addressing-short-time-work-in-the-covid-19-crisis/, accessed on 20.5.2020.

¹⁰ Cf. Federal Ministry of Labour and Social Affairs, 2020.

¹¹ https://www.dw.com/en/short-time-work-a-vital-tool-in-germanys-economic-armory-against-coronavirus/a-52952657, accessed on 20.05.2020.

¹² Cf. Agentur für Arbeit, 2020. p. 12.

¹³ Cf. Federal Ministry of Labour and Social Affairs, 2020.

¹⁴ https://www.lathamgermany.de/2020/03/legal-update-covid-19-how-germany-is-addressing-short-time-work-in-the-covid-19-crisis/, accessed on 20.05.2020.

¹⁵ Cf. Agentur für Arbeit, 2020. p. 16.

¹⁶ Cf. Thorsten Schulte/Torsten Müller. Ausgabe 04/2020, p.3.

¹⁷ Cf. Thorsten Schulte/Torsten Müller, 2020. p. 4.

¹⁸ Cf. Federal Ministry of Labour and Social Affairs, 2020.

¹⁹ Cf. Deutscher Gewerkschaftsbund, 2020.

²⁰ Cf. Federal Ministry of Labour and Social Affairs, 2020.

²¹ Federal Ministry for Economic Affairs and Energy, 2020.

²² https://de.statista.com/statistik/daten/studie/1102861/umfrage/umfrage-unter-deutschen-unternehmen-zum-einfluss-des-coronavirus-auf-den-umsatz/, accessed on 30.06.