Lessons For US From European Jobs Model

The labour market within Germany fared far better than that in the US through the recent recession and economic turmoil mainly in part due to Germany’s pre recession weakness within this area a recent report confirms. The study found that the EuroZone’s widely implemented practice of reducing working hours through tougher times as opposed to making employees redundant contributed positively and perhaps suggesting the US may well benefit from the practice.

The report also thrust at the heart of the incessant trans-Atlantic debate over who has the best labour model. While the US model allows companies to hire labour more easily than mainland Europe. While the economy expands this is a reliable model however proves exceptionally painful when events turn sour as per the 2009 recession. During the recent crisis the German economy contracted more than America’s but employment in Germany fell badly by around 0.5% compare this to US employment which sank by 5.6%, the largest decline within decades. This gap still shows today irrespective that both economies have grown at a similar pace since the US recession (supposedly) ended in 2009, unemployment in Germany stood at 7.9% in February which is a full 1% behind the US.

In the mid 2000s aided by a surging economy the unemployment rate fell to below 5% in 2006. It was double this in Europe. This portrayed the flexible US model as the better one compounded by Europe’s strict firing rules enforcing reluctance to hire. Post crisis unemployment soared in the US. European politicians sang the praises of their model i.e. fewer hours and les pay to check unemployment, but in Germany’s case it is argued that these facts aren’t the only reasons for better jobs performance.

Most explainations of the stronger jobs performance within Germany was argued to as a consequence of employers’ non confidence in the sustainability of the boom and/or it’s longevity and a reluctance to hire more. The study confirmed that 35% of missing employment decline within Germany was own to this. What also contributed was hours in lieu or flexi time that being working unpaid overtime during rising demand and when demand fell hours were cut by an equal amount of unchanged pay.

Other countries in Europe adopt similar practices to cope with crisis. France has ‘chomage technique’ (technical unemployment) which allowed ski making equipment firm Rossignol to bring a halt to production in February through March 2009 to wind down unsold inventory items. Under a programme also used within Italy workers at Fiat can receive upwards to 80% of pay even if they don’t work for several months, with help from government. Another paper presented also highlights the danger of wide spread long-term American unemployment and confirms how the country can benefit form looking at European ideas.

It was also found that the longer someone remains unemployed the less time they take to search for employment hence it becomes harder to find a new job. The report by Alan Krueger (Princeton economist) and Andreas Mueller (Stockholm University economist) tracked over 6,000 New Jersey workers while they searched for employment within the depths of the recession, Kreuger was a former assistant Treasury secretary for economic policy within the Obama administration and showed that job searching becomes more depressing throughout the course of unemployment.

Most economic models report that the duration spent looking for unemployment should remain constant and/or rise the longer unemployment continues partly in respect of people exhausting jobless benefits. However research finds the opposite as workers who cut the time spent job searching by around a third during the initial 3 month period. The economists put forward most workers may well run out of suitable jobs to go for or get discouraged the longer they seek employment. Continued unemployment brings with it the risk that many out of work may well lose relevant skills while also becomeing discouraged from searching for employment which, in turn, raises the hysteresis along with permanently higher unemployment.