Effects of the Corona Crisis on the German Economy 5 – Focus on Labour Market Situation

1 Overview of the current labour market situation

The warnings about the labour market situation that have been issued from various directions in recent months are reflected in the statistics of the Federal Employment Agency.

In April, a strong increase in unemployment figures was recorded due to corona. From March to April the number rose by 308,000 to 2,644,000, an increase of 415,000 persons compared to the previous year. The unemployment rate thus rose by 0.7 percentage points to 5.8 percent.

At the beginning of June, Federal Employment Agency CEO Detlef Scheele said that the labour market was still under pressure from the corona crisis: "Unemployment and underemployment continued to rise in May, but not as strongly as in April. [...] Short-time work has clearly exceeded the level of the 2009 crisis. The demand from companies for new employees continues to decline [...].

In specific terms, this means that the number of unemployed rose by 169,000 to 2,813,000 in May, which is an increase of 577,000 compared to the previous year. In percentage terms, the rate rose to 6.1 percent in May.1 This is an increase of 1.2 percent compared to May 2019.

364,000 more persons than in the previous year, a total of 1,058,000 persons received unemployment benefit and 4,027,000 persons, i.e. 75,000 more persons than in May 2019, received basic support for jobseekers (SGB II). This means that in May 2020, 7.4 per cent of all persons of working age living in Germany were in need of assistance.

When calculating the number of people on short-time working, it must be borne in mind that companies must report the expected loss of working hours before they begin short-time working, which was done for 1.06 million people in May. For March and April together, 10.66 million persons were reported, although this does not necessarily reflect the actual number of times short-time work was taken up. In March, short-time work compensation was actually paid out for 2.02 million people. Although calculations for April and May are still pending, the take-up of short-time work in March was already well above the figures at the time of the 2008/2009 Great Recession.

According to the report of the Federal Employment Agency, the demand for labour fell by 208,000 to 584,000 jobs compared to the previous year. The BA job index (BA X), an indicator for the demand for personnel in Germany, had dropped from 94 to 91 points in May, 38 points lower than last year.

These trends were also evident on the apprenticeship market. Compared to the previous year, 39,000 fewer applicants for apprenticeships and 46,000 fewer apprenticeships were reported. There was a particular decline in apprenticeship places in the catering and hotel trade, hairdressing, mechanical and industrial engineering, electrical engineering, commercial occupations, IT occupations, food sales and professional transport sector.3

2 Factors for the Rise in Unemployment

In its analyses, the Federal Employment Agency stated that the increase in unemployment figures was not exclusively due to Corona-related dismissals, but also to the fact that there were fewer new hires and it was therefore more difficult to find a way out of unemployment. In addition, the total number also included those who, although not dismissed, were no longer able to work as self-employed due to the loss of commissions.5

According to the analyses, the short-time work measure can certainly be mentioned as a mitigating factor. During the financial crisis in 2009, there were over 1.4 million short-time workers, and various studies subsequently pointed out that the rise in unemployment figures at that time could be substantially mitigated by short-time work. The fact that the number of applications for short-time work has been significantly higher than during the financial crisis shows that there is a strong interest in avoiding dismissals.6

The experts warn, however, that in the event of insolvencies, the measure of short-time work could not prevent the rise in unemployment. Moreover, if the economic shock is not only temporary but grows into a systemic crisis, short-time work will not be able to secure jobs in the long term either.7

3 Forecasts

As a special department of the Federal Employment Agency, the Institute for Employment Research (IAB) advises political actors and, among other things, prepares forecasts for the further development of the labour market based on the research results. For the coming months, the Institute estimates that the number of unemployed could rise sharply in the short term to more than 3 million people but could fall again in some areas in the further course of the year. Compared to the previous year, unemployment could increase by up to 520,000 people on average for the year, which would correspond to an increase of around 23 percent.

Even at the time of the economic and financial crisis, the increase in August 2009 compared to the same month last year was only about 9 percent. The figure shows the expected development of the unemployment rate on average for the months of May, June and July 2020 compared with the corresponding period of the previous year. In addition to the effects of the corona crisis on the labour market, these results also took into account other economic influences as well as long-term structural developments such as demographic change. They also illustrate regional differences:

In the southern states of Baden-Württemberg, Bavaria, Hesse and Rhineland-Palatinate as well as in Hamburg, the unemployment figures could rise particularly sharply, by 39 percent or more. In all other West German states, with the exception of Bremen, as well as Berlin and Thuringia, an increase of between 30 and 39 percent compared to the same period last year is expected. For Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Bremen, the expected increase in unemployment could be lower at less than 30 percent. A comparison showed that the highest increase in unemployment at the time of the economic and financial crisis in August 2009 compared to the same month of the previous year was recorded in Baden-Württemberg at 34 per cent.8

In an interview at the beginning of June, Scheele explained that the corona crisis had also led to changes in the Federal Employment Agency. Short-time work advertisements and applications were currently being processed by about 11,600 people, compared to normally only 700 people. "We have to be easy to reach, which is why we now have 18,000 colleagues on the telephone, normally 4,000. To achieve this, we had to massively expand our IT capacities in parallel: The telephony, the servers, the possibilities for home office workstations." Many of these employees therefore also take on tasks for which they have not been trained and had to have become familiar with the system.

Financially, however, the crisis could push the Federal Agency to its limits: "With 7.5 million short-time workers at the peak and 2.2 million on average per year, we would have a loan or subsidy requirement of 4.6 billion euros from the Federal Government at the end of the year. We will only know the exact figure when it is clear how many people actually worked short time, how much lost working time there was and how long the short-time work lasted. We will not know that until after a delay of several months."

However, Scheeles' final prognosis was that the peak of short-time work applications had already been reached and that, overall, there was no mass unemployment to be feared, since it was not a structurally underdeveloped economic situation that was the cause, but a pandemic that could hopefully be overcome with a vaccine at the latest, so that the labour market could recover again in the medium term.9

Sources

1 Bundesagentur für Arbeit; Entwicklung des Arbeitsmarkts 2020 in Deutschland  (last viewed on June 26, 2020)
2  Statistisches Bundesamt; Entwicklung der Erwerbstätigenzahlen  (last viewed on June 26, 2020)
3 Bundesagentur für Arbeit; Der Arbeitsmarkt im Mai 2020 (last viewed on June 26, 2020)
4 Bundesagentur für Arbeit; Monatliche Zeitreihen zum Arbeitsmarkt in Deutschland  (last viewed on June 26, 2020)
5 Frankfurter Allgemeine Zeitung; Warum die Arbeitslosigkeit steigt (last viewed on June 26, 2020)
6 Institut für Arbeitsmarkt und Berufsforschung (IAB); Kurzarbeit, Entlassungen, Neueinstellungen: Wie sich die Corona-Krise von der Finanzkrise 2009 unterscheidet   (last viewed on June 26, 2020)
7 Institut für Arbeitsmarkt und Berufsforschung (IAB); Kurzarbeit in Europa: Die Rettung in der Corona-Krise? Ein Interview mit IAB-Forscherin Regina Konle-Seidl (last viewed on June 26, 2020)
8 Institut für Arbeitsmarkt und Berufsforschung (IAB); Regionale Arbeitsmarktvorausschau (Stand: Mai 2020) (last viewed on June 26, 2020)
9 ZDF; BA-Chef Scheele - Finanzielles Defizit und personelles Umdenken (last viewed on June 26, 2020)

Veröffentlicht in Business.