How Germany Saved Its Workforce From Unemployment While Spending Less Per Person Than the U.S.
How Germany Saved Its Workforce From Unemployment While Spending Less Per Person Than the U.S.
by Alec MacGillis, ProPublica, June 3, 2020
The pandemic has cost jobs around the world. Comparing people who lost the same position in the two countries reveals that the U.S. government is spending more on unemployment — but its citizens are getting less.
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The global coronavirus pandemic threw Petra Hamann’s job into peril faster than just about any other. She is a physical therapist, a profession that is all about close proximity to others, with a clientele that leans toward older people, exactly the population most vulnerable to the virus. In March, she and the rest of the 10-person therapy group that employed her lost virtually all of their clients, first as a result of clients’ fears about coming in for appointments, then as a result of government stay-at-home orders.
But neither Hamann nor anyone else in her group lost their job. Instead, they were kept on and, even while having zero clients, received 60% of their normal pay. As about half her clients gradually started to return in recent weeks, she began making 80% of her usual pay (including compensation for the clients who had not come back). And she was able to do so without having to negotiate any paperwork or online bureaucracy; she and her co-workers simply signed a form from their employer.
The upshot is that, even amid an existential threat to her job, Hamann and her colleagues were able to adjust to the new circumstances with minimal stress. Her brother is benefiting from the same program at his auto-manufacturing job, where he’s been getting 70% of his usual pay despite sharply reduced hours.
“We’ve found it all pretty good,” Hamann said. “As a way to bridge the gap, it’s a good deal.”
If this experience sounds foreign to most Americans, that’s because it is. Hamann lives in Paderborn, a city of 148,000 in north-central Germany, and she is benefiting from that country’s trademark approach to economic downturns. Instead of leaving employers to lay off workers en masse during hard times, and then have the workers apply individually for unemployment benefits, the German government subsidizes employers’ payrolls directly. Workers at a given firm or business agree to all work fewer hours, to spread what work remains among the whole staff instead of having some people laid off. But through government subsidies, they continue to receive a sizable share of their usual pay, as high as 87%, even if circumstances have them working few hours for the time being. When the economic crisis passes, they return to work full time, without the upheaval of losing a job and filing for unemployment on their own.
Some 10 million Germans are currently benefiting from Kurzarbeit, as it’s called there — literally, short-work. It has been adopted in similar form during the pandemic crisis by several other countries, including France, Spain and the U.K.
But in the U.S., despite half-hearted efforts in some states, the workshare approach, as it’s typically referred to here, is barely a blip on the horizon. Americans have filed more than 40 million claims for unemployment benefits in the past 10 weeks. Meanwhile, there are fewer than 200,000 Americans benefiting from workshare payments while remaining employed, according to a tally by Susan Houseman, an economist with the nonpartisan W.E. Upjohn Institute for Employment Research in Michigan.
It might be tempting to view workshare as a luxury of the stronger safety nets in Europe and the high taxes that pay for them. But the lofty tax rates in Germany mostly fund generous coverage for illness, disability and pensions. When it comes to unemployment, according to Houseman and other economists, the U.S. and Germany spend comparable amounts per person. Both approaches are costing governments on either side of the ocean tens of billions of dollars. If anything, the U.S. is now spending more, proportional to the size of its population, on its safety net for the unemployed. (More on that later.)
“Somehow, there’s a notion that there’s a huge expenditure that we can’t handle, or that the Germans are fundamentally different,” Houseman said. “No, right now we’re paying people to sit at home and the Germans have workers being paid while they’re still on the job and that has long-term benefits.”
The difference in approaches has helped contribute to wildly different levels of economic fallout and social upheaval in response to the same pandemic. In Germany, the unemployment rate has increased from 5% to 5.8% from March to April. In the U.S., it surged from 4.4% to 14.7%.
One of the millions of newly unemployed in the U.S. is Keri Woloszynski. Like Hamann, she is a physical therapist and mother in her 40s who before the pandemic was working a part-time schedule. Like Hamann, she worked in a small practice, with four other physical therapists and physical therapy assistants.
Like Hamann, Woloszynski saw her practice, which is in Palm Harbor on the Florida Gulf Coast, essentially shut down for a couple weeks. The clientele had already been shrinking for several weeks, when, on March 21, the staff learned that another employee at the practice, in the billing department, had gone to the emergency room and been tested for COVID-19. The practice shut for two weeks. When it reopened, it was agreed that Woloszynski would defer to another physical therapist to handle the clients that had returned, since Woloszynski had kids to watch at home now that school was closed. She would, it was agreed, apply for benefits under the Family and Medical Leave Act.
But a few days later, on April 11, her employer informed her by mail that as a health care employee, she did not qualify for FMLA. They would have to lay her off.
Even though it was plain to her that the layoff was driven by circumstance and not performance, it came as a shock. Woloszynski, whose husband works for the local municipal government, had come back to work only 13 months earlier after taking a lengthy break while her kids were young, and after retaking the national licensing exam as a requirement to return. “I cried for hours — I love my job,” she said. “I worked so hard to get this license again after 11 years off. So to then get tossed aside, and be the only one tossed aside, I was emotional about that. It’s definitely affected my self-confidence. Even though the letter said it had nothing to do with your performance, I took it personally.”
And then came the nightmare of applying for unemployment benefits. She managed to get two $600 payments of federal Pandemic Unemployment Assistance for gig workers. But when she applied for regular unemployment benefits, the state deemed her ineligible. She couldn’t ascertain why but thought it was perhaps because she hadn’t worked at the job long enough. She logged on to the website every other day to try to press forward with her application. In early May, she got an ominous-sounding online notice stating that “the Florida Department of Economic Opportunity (DEO) has received information that may affect your claim for reemployment assistance” and that as a result of that information, “an investigation of your eligibility for unemployment benefits may be necessary.” The notice explained that “as a result of the investigation, you are disqualified from receiving benefits.” It was all completely bewildering.
At last, a couple of regular unemployment insurance payments came through. All told, she has received $2,900 in federal and state unemployment payments since the start of the crisis, less than half of what her pay would have been over that period. For her, the challenge has been less financial — her husband’s job has carried her family through — than the sheer uncertainty and time lost to the unemployment system.
Almost 1,000 miles to the north, Jamie Meteer has been in similar limbo with the unemployment system. She is a physical therapy assistant, also in her 40s, and has spent the past five years working for the Baltimore-area branch of a nationwide home health company. The local team consisted of four physical therapists and four physical therapy assistants. As a result of the pandemic, the company decided to cut one of the former and two of the latter. The cuts were supposed to be by seniority, but the PTA behind Meteer in seniority was her own husband. They were given the choice, and they decided that he would keep working and that she would care for their kids while school was closed.
Meteer went to file for state unemployment benefits and was quickly in a morass. Early in the crisis, as her caseload was already being reduced, she had filed for benefits for a temporary reduction in hours, which would have paid her about a third of her weekly gross pay. But she never received those payments, because a couple weeks later, the system deemed her in violation because she had been slightly over the allowed threshold of 50% of normal hours worked, a threshold she hadn’t been aware of. She was still trying to resolve that by the time she filed for regular benefits after being laid off, and the earlier dispute kept her from being able to do so. “I’m stuck in this position where I can’t get unemployment at all,” she said.
Making matters worse is that Maryland’s website for filing claims kept breaking down. Meteer has spent several hours on the phone or online every day trying to get her benefits. On May 15, she said, she ended up calling from 10 a.m. to 2:30 p.m. until she finally got through to someone. “You can’t do anything online — you can’t get through to anybody,” she said. “I give myself breaks, or I’ll go insane.” Her family is just managing its mortgage and car payment on her husband’s income, but it has economized on everything else. “We’ve had to cut back a lot on regular spending,” she said. “All extras have been suspended. Anything that isn’t a bill or groceries is on a spending freeze until we can either get unemployment or I can get back to work.”
The debate over the workshare approach first came to the fore during the Great Recession, when some U.S. elected officials and policy advocates made a big push for making it a major part of the Obama administration’s economic stimulus, to no avail. Larry Summers, Obama’s chief economic adviser, argued in the fall of 2009 that the administration had been correct to leave workshare out of the mix. “I think we got the Recovery Act right,” he said. “The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”
More recently, though, Summers has expressed regret that the Obama administration didn’t try to do more in late 2009, including on the unemployment front, although he doesn’t mention workshare explicitly. “By the end of 2009, however, driven by misguided concern about budget deficits and a desire to get to long-run agendas, we declared that the green shoots of recovery were at hand and left the battlefield,” he said in a 2019 speech at the Brookings Institution. “Demand was still too weak to drive a robust recovery, and as a consequence, the expansion was substantially slower than it could have been, with less capital investment and more people unemployed for a longer period of time. The lost output certainly cast a shadow forward.” (Summers did not respond to a request for comment for this article.)
Opinions on workshare do not break down along standard ideological lines. For example, Kevin Hassett, then director of economic policy studies at the American Enterprise Institute and now a top economic adviser to President Donald Trump, published a study in 2014 arguing that “worksharing should be at the top of the list” of policies to prevent long-term unemployment. Some studies credited workshare with helping Germany maintain higher employment rates than the U.S. during the Great Recession. That, however, was not a unanimous view.
In the decade since, nine states have adopted some form of a workshare option for employers, on top of 17 that already had it. Kentucky has started it up during the current crisis, as well; the 27 states that now have it on the books account for about 70% of the country’s population. But many employers are unaware of the programs, and many state officials aren’t exactly enthusiastic about promoting them, since administering them can mean extra work for understaffed state unemployment offices. The underutilization is especially striking because, under the CARES Act passed in April, the federal government will cover 100% of workshare costs, which should make it much more appealing to employers than unemployment benefits, which are paid for in part by employers’ own taxes.
Making workshare even more attractive now is that workers entering the program will also collect $600 per week for enhanced unemployment benefits, even if they’re still collecting most of their paycheck. Yet a tiny fraction of employers are using the program. Some have instead availed themselves of forgivable loans from the Paycheck Protection Program, but that money is available only to smaller employers and was initially depleted amid a rush in demand.
The underutilization of workshare has been maddening for those who believe in the approach, such as Houseman, of the Upjohn Institute. She notes that workshare is more efficient for employers when it comes to staffing back up after a recession, and far less traumatic for workers, who can avoid the well-documented emotional and financial “scarring” effects of long-term unemployment, not to mention the risk of losing their health insurance in a country that ties coverage to employment.
And she challenges the main rap against workshare, that it defers the inevitable by allowing employers to keep from making the tough decisions to restructure to adapt to systemic changes in the economy. That may be the case in a regular recession, she said, but in this case, the downturn was the result of a public health emergency that will eventually subside. “This had nothing to do with problems in the economy. Businesses were not in trouble because they were not economically viable,” she said. “It’s that they had to slow down, and we want to keep people in place.”
Critics of workshare argue that the pandemic will in fact cause systemic changes in the economy, leaving some industries, such as travel and restaurants, facing major troubles for months if not years to come. In that case, workers should be encouraged by the brute reality of unemployment to seek out new sorts of work.
But Houseman differs. “I truly believe that there will be systemic changes, but we don’t know what they are right now, so to be making those pronouncements after two months and say, we’re not going to set it up is wrong,” she said. “There may be businesses that will end up going under, but there will be others that will be salvaged and this could reduce a lot of pain.”
Meanwhile Houseman and Werner Eichhorst, with the Institute of Labor Economics in Germany, point out that, even if you add in ongoing administrative costs that fund the superior German unemployment infrastructure, the U.S. is on track to spend way more per job than Germany during the pandemic. The surge in unemployment has been so large that experts at the Urban-Brookings Tax Policy Center estimate the U.S. will end up spending far more on additional unemployment insurance than the $260 billion that Congress estimated when it passed the CARES Act. That’s on top of the $660 billion for the Paycheck Protection Program and the $1,200-per-person relief checks in the CARES Act.
In Germany, which has a population a quarter the size of the U.S., the full cost of Kurzarbeit for the crisis is expected to exceed current government estimates of about 30 billion euros (about $33 billion), according to Eichhorst. Add in the cost of unemployment benefits for those who have been laid off in that country, and the total cost comes to about $40 billion. But that’s still significantly less than the U.S. is spending on unemployment insurance, adjusted for the country’s size.
In Florida, Woloszynski has received word that she might be able to go back to 12 hours per week in June — far less than the 25 she was doing before, but something. “All that angst and emotional rollercoaster are for nothing,” she said. Asked what she thinks about the workshare alternative, she said: “Oh, my gosh, that would be wonderful. It would take care of so much of my stress and the whole question mark of, ‘Am I going to be able to go back to this job.’ I wish we could have something like that and our system could be run differently.”
In Maryland, Mateer agreed. “To me, it just makes so much more sense for the government to bring the employers on so they can pay their employees and maintain staff. It just makes more sense to bypass an unemployment system that doesn’t work.”
In Germany, Hamann got word of what her American counterparts were going through. She responded with a couple expletives. And then: “Wahnsinn.”
Insanity.
