Country case study--Germany

Abstract

The Great Recession (GR) of the late 2000s had a significant but fortunately only temporary impact on the German labour market and economy as a whole. By the last quarter of 2010, nominal GDP had already returned to pre-recession levels and unemployment had reached its lowest levels since reunification. Scholars have described this striking resilience of the German labour market as ‘Germany’s jobs miracle’ (Krugman 2009). In this chapter, we describe the impact of the GR in Germany on individual and household income as well as on employment. We show that both employment and income levels remained fairly stable during the GR, although the use of overtime declined. We also find evidence that the income distribution temporarily became more concentrated. Furthermore, based on subjective indicators of people’s concerns about the German economy and about their own financial situations, we find that while the recession produced a general sense of uncertainty about the economy, it had no identifiable effect on personal financial concerns. Finally, we explain the surprising positive development of the German labour market during the GR in detail, highlighting the central role of short time compensation programmes, other forms of flexible labour arrangements, and the German government’s aggressive stimulus packages. The price for these programmes will still have to be paid in the future, however, given that increased public debts will have to be balanced by cutbacks in social security and public benefits.