The German employment miracle in the Great Recession: the significance and institutional foundations of temporary working-time reductions

Abstract

We analyse the robust performance of the German labour market in the Great Recession, and investigate to what extent cyclical reductions in productivity and working time cushioned employment losses. We present stylized facts and apply time-series techniques to estimate counterfactual developments. Our results show that the magnitude of temporary working-time reductions was extraordinarily pronounced, whereas cyclical reductions in hourly productivity were in line with historical evidence. Using detailed information on instruments for the adjustment of working time, we uncover the institutional mechanisms behind this strong reduction. While short-time work played a significant role, even more important were working-time accounts and discretionary variations in regular working time, two new instruments which gained widespread use in the decade before the Great Recession.