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The Response of German Establishments to the 2008–2009 Economic Crisis

Part of the Dynamic Modeling and Econometrics in Economics and Finance book series (DMEF,volume 19)

Abstract

The global economic and financial crisis which began in 2008 had very different effects on the labour markets of EU economies. In particular, unemployment rose far more in some countries than in others, even after conditioning on the fall in GDP. Thus, in the words of the OECD Employment Outlook (2012), some labour markets might be described as more “resilient” than others in the face of shocks. In this chapter we propose a simple descriptive methodology which relates output shocks and job flows to hires and separations. This methodology sheds light on many of the proposed explanations for the resilience of German establishments to the crisis, in particular the role of various institutional arrangements intended to promote workplace flexibility, such as short-time-work and working time accounts. The increasing availability of detailed linked employer-employee data will enable this methodology to be applied consistently across countries. The chapter therefore serves to open up a research agenda which compares the behaviour of firms’ hiring and firing policies across countries.

Keywords

  • Employment Growth
  • Demand Shock
  • Extensive Margin
  • Intensive Margin
  • Labour Market Institution

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Notes

  1. 1.

    OECD (2012, Chapter 2) discusses in detail the extent of labour market resilience of OECD labour markets.

  2. 2.

    Analysis of the intensive margin (hours of work) is more problematic because the survey we use only measures “standard” hours of work, but we will also consider within-establishment changes in labour productivity.

  3. 3.

    Burda and Hunt (2011, Equation (1)) formalises these three channels.

  4. 4.

    As explained in Crimmann et al. (2010), there are three types of STW: “transfer kurzarbeit” which was used extensively during reunification; “seasonal kurzarbeit” and “short-time work for economic reasons”. We consider only the third type here.

  5. 5.

    Although note that accounting exercises such as this one do not necessarily tell us about the effectiveness of the policy because they ignore deadweight and displacement effects.

  6. 6.

    We thank Ines Zapf for providing this information.

  7. 7.

    The estimated coefficients have rather large standard errors, and therefore it is difficult to be precise about the size of the effect.

  8. 8.

    The prevalence of firm-specific vocational training in Germany may also be a factor here.

  9. 9.

    The analysis is only conducted for the state of Baden-Würtemberg.

  10. 10.

    Weights to ensure that the sample is representative are calculated by comparing the sample of establishments with the population of establishments in the same Federal state, size and industry cell. The population of plants is obtained from a Federal Agency for Employment establishment database. A more detailed description of the data and the weighting procedure is described in Fischer et al. (2009).

  11. 11.

    This includes “Dismissal on the part of the employer”, “Leaving after termination of the in-company training” and “Expiration of a temporary employment contract”, all of which might be regarded as dismissals by the employer. Appendix 2 gives a precise description of the relevant questions.

  12. 12.

    Establishments are excluded if any of the following are true: (1) their industry is coded as “public services”; (2) profit status is coded as “non-profit”; (3) legal status is coded as “Public corporation”; (4) ownership status is coded as “Public”.

  13. 13.

    The sample selection procedure used is identical to that used in Bellmann et al. (2011).

  14. 14.

    This is based on the answer to the question “How do you assess to overall technical state of the plant and machinery, furniture and office equipment of this establishment compared to other establishments in the same industry?”

  15. 15.

    This question asks: “Is business volume expected to decrease in the current year compared to the previous year?”

  16. 16.

    During this period we estimate β h = 0. 97 and \(\gamma ^{s} = -0.96\).

  17. 17.

    Note that the survey does not allow us to measure total hours of work, so we cannot distinguish changes in hours from changes in output per hour.

  18. 18.

    Controls included are the change in output lagged 1 year, self-reported profitability, self-reported state of equipment in the establishment, proportion of different worker types, whether the establishment is an independent firm, bargaining arrangements and existence of a works council.

  19. 19.

    Possible responses: “Yes”, “No”, “We are planning to introduce working time accounts.”

  20. 20.

    This is a similar model to that estimated by Boeri and Bruecker (2011).

  21. 21.

    The Tobit model interprets the proportion of workers covered as a continuous variable censored at zero.

  22. 22.

    Deeke (2005) finds a similar result based on earlier waves of the IAB survey.

  23. 23.

    The coefficients on industry are large and highly significant for manufacturing industries in these regressions.

  24. 24.

    A second possible explanation is that the employment adjustment (which is recorded over the first 6 months of 2009) occurred before the use of STW if STW started after January of 2009.

  25. 25.

    We assume that this is caused by measurement error, either in the variable recording employment or the variable recording the number of workers covered by STW.

  26. 26.

    A regression of STW (2009) on STW (2006) has a coefficient of 0. 29 with a standard error of 0. 04.

  27. 27.

    There are five endogenous variables in the DiD model (STW, STW interacted with y and y and STW interacted with \(y^{+}D^{09}\) and \(y^{-}D^{09}\). The F statistics from these first stage regressions are always less than the recommended value.

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Correspondence to Richard Upward .

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Appendices

Appendix 1: Additional Table

Table 11 IAB establishment panel: selected sample

Appendix 2: Questions Used in the IAB Establishment Panel on Worker Turnover

The following questions are used to determine hires and separations:

  1. 1.

    Did you recruit staff in the first half of < current year > ?

  2. 2.

    Please indicate the total number of workers recruited.

  3. 3.

    Did you register any staff leaving your establishment/office in the first half of < current year > ?

  4. 4.

    Please indicate the total number of workers who left your establishment.

Respondents are also asked to distribute the total number of employees who left among the following categories:

  1. 1.

    Resignation on the part of the employee

  2. 2.

    Dismissal on the part of the employer

  3. 3.

    Leaving after termination of the in-company training

  4. 4.

    Expiration of a temporary employment contract

  5. 5.

    Termination of a contract by mutual agreement

  6. 6.

    Transfer to another establishment within the organization

  7. 7.

    Retirement after reaching the stipulated pension age

  8. 8.

    Retirement before reaching the stipulated pensionable age

  9. 9.

    Occupational invalidity/ disability

  10. 10.

    Other

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Bellmann, L., Gerner, HD., Upward, R. (2015). The Response of German Establishments to the 2008–2009 Economic Crisis. In: Commendatore, P., Kayam, S., Kubin, I. (eds) Complexity and Geographical Economics. Dynamic Modeling and Econometrics in Economics and Finance, vol 19. Springer, Cham. https://doi.org/10.1007/978-3-319-12805-4_8

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