One could get the impression that the left hand of the federal government does not know what the right hand is doing. Economics Minister Robert Habeck (Greens) describes the shortage of labor as one of the “most urgent challenges for companies in the state” in his annual economic report. And the Federal Employment Agency announces that the labor market has almost digested the pandemic and that unemployment has almost reached pre-crisis levels.
And – as if this were a matter of course – he continued that the sectors that were particularly hard hit, for example in the event and catering sector, “are dependent on an extension of the regulations for simplified access”.
But such facilitating rules are not a matter of course for all sectors. Because what was right in an acute economic crisis can be wrong in terms of growth – especially in an economy that is confronted with an increasing shortage of skilled workers. Therefore, simplified access to short-time work should be an exception in the event of a severe economic downturn.
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With simplified access, only ten percent of a company’s employees have to be affected by lost work – instead of the usual 33 percent. At the same time, Minister of Labor Heil wants to extend the duration of claiming these benefits to 28 months. This means that employees could be on short-time work without interruption from March 2020 until next summer. Instead of assistance in the amount of the unemployment benefit, the short-time workers currently receive a higher wage replacement: for employees who lose at least half of their income, the short-time work allowance increases to 70 percent from the fourth month and to 80 percent from the seventh month.
side effects of generosity
Everyone affected by underemployment is of course happy about a higher short-time work allowance. Nevertheless, as Minister of Labor it is important to take the side effects of this generosity into account.
German federal government extends rules for short-time work
Because the easier it is to access short-time work, the greater the risk of macroeconomic inefficiencies when using it, specifically: the structure-preserving effects.
Structural change is part of a dynamic economy. The disappearance of old sectors of the economy and the emergence of new ones is the main driver of growth in mature economies. Already 100 years ago, economist Josef Schumpeter recognized the growth-driving force of “creative destruction” in structural change.
Of course, politicians can try to oppose structural change, as in Great Britain in the 1950s, when the trade unions were able to get stokers to ride electric locomotives for another two decades. And the federal state of North Rhine-Westphalia is still suffering from the fact that it has relied on the traditional mining industry for too long.
Such mostly well-intentioned policies do not make sense, since capital and skilled workers remain tied up in uncompetitive companies for too long. In view of the demographic development that has been well known for a long time, this would be a capital mistake. Only those people who cannot keep up with the change need the help of the welfare state.
This winter, due to the pandemic, short-time work increased again noticeably. According to projections by the Institute for Economic Research (Ifo), 900,000 people worked part-time in January. Almost half were employed in hospitality and retail, and just under a quarter were industrial workers.
With the extension of the comfortable short-time work rules, what is probably the last chance to persuade these employees to switch to another industry is now being wasted. At least the majority of the 218,000 short-time workers in the manufacturing sector are not due to the pandemic but to structural problems. After all, the order situation is excellent and many industrial groups have had a record year.
Do not prevent workers from changing industries
Digitization and decarbonization will accelerate structural change. Today, the most valuable companies in the world are no longer those that build the best cars or machines, but those whose profitable business models are based on the collection and use of data.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at research.handelsblatt.com.
It is also certain that fewer workers are required to build electric cars than to assemble combustion engines. Instead of sophisticated engine technology, these cars primarily need digital battery and engine control. And if future steel, chemical and cement plants can no longer be operated profitably in Germany for reasons of climate protection, the workers there should not be prevented from changing industries.
At the same time, the construction industry, for example, is desperately looking for skilled workers, engineers and IT experts. On the one hand, the infrastructure is getting on in years, and on the other hand, the federal government wants to push housing construction again. In addition, hundreds of thousands of old buildings have to be energetically renovated every year if the decarbonization of the German economy is to succeed within two decades.
Read more: Funding freeze for efficient houses – SPD and Union blame each other
At the same time, the growth prospects are deteriorating, as Germany is about to start a massive aging surge that will last about 20 years and to which politicians have no answers.
The baby boomer cohorts will soon be gradually retiring and will have to be replaced by significantly smaller cohorts in the offices and factory buildings. So there is no danger of mass unemployment like at the beginning of this century.
Germany is heading towards a labor shortage
Rather, Germany is heading towards a labor shortage that has been forecast at best. In the middle of this legislature, the highest level of employment should be reached; Shortly thereafter, the growth potential begins to decline steadily due to the falling labor supply. In the 2030s, real growth and thus increases in prosperity will be anything but a matter of course.
The government should therefore do everything it can to mobilize the hidden reserve for the labor market, which has already become smaller, and create the conditions for as many part-time employees as possible to be able to work full-time.
At least as important, however, is that existing, qualified workers can migrate to those sectors in which they are most productive – and not, as was once the case in England, travel along on electric locomotives as unproductive stokers for years.
The end of the pandemic is in sight. Some states have already lifted all restrictions. In the spring, most of the restrictions should also be lifted in Germany. It is therefore time to end all structure-preserving crisis rules and concentrate on promoting growth.
Short-time work not only costs a lot of tax money, it can also prove to be a permanent brake on growth during the upswing – and unnecessary brake blocks are the last thing the German economy should afford in view of the great challenges in the next two decades.
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