New German law shall prevent crisis in labour market

For years, the German labour market prospered, mass unemployment was not at all a problem, in fact it was difficult to find qualified employees. However, the times of sustained growth may soon be over. The ifo business climate index has been decreasing for the last couple of months and the German economy shrank slightly in the second quarter of 2019 compared with the previous quarter. The German government wants to be prepared for an potential recession and therefore started elaborating a draft law especially concerning support for struggling companies and their employees.

During the economic crisis 2008/2009 many companies struggled to continue to employ their employees. On the one hand they could not afford to pay the wages anymore but on the other hand they feared losing the skills and knowledge of the employees if they were to be dismissed. To solve this dilemma, German social code (Sec. 95 f. German Social Code Book 3, §§ 95 ff. SGB III) provides for the possibility of granting a short-time work allowance. (Kurzarbeitergeld). The state temporarily pays a portion or the entire salary of the employee, and the employer refrains from dismissing the employee. This short-time compensation enabled the companies to recover very quickly after the economic crisis, which strengthened the German economy as a whole.

The new law now aims to further extend the mechanism of such short-time benefits by providing new opportunities for training workers during periods of work loss. The aim will no longer only be to financially support companies and employees, but also to promote training during times of short-time work.

A further goal of the new law is the qualification of people who have no further prospects in the company. A lack of prospects could arise, for example, as a result of on-going digitalisation or ecological change. The employment of such employees is to be promoted by the state, if further training takes place in the enterprise. It is not yet clear exactly how this support will be provided, but it will probably result in an expansion of the scope of application of the former short-time working allowance. So far, the aim has been to cover temporary work loss in the sense that workers can continue to work normally. Now the former requirement that the loss of working hours should only be temporary will probably be weakened. We will have to wait and see how the specific law is formulated.

If the employer has set up a transfer company to facilitate the transition of employees to a new employment relationship, the state support should be extended. Therefore, if training is offered, the duration of the remuneration is extended.

In conclusion the proposed law wants to add new possibilities to promote further education to the well-established mechanism of short-time allowance. However the proposal is very vague as yet, therefore it is difficult to predict what effect the law will have in practice.