Economic policy works: As Covid-19 containment measures cripple economic activity across the world, the prospect of a near-term surge in unemployment looms large. Germany has, however, powerful fiscal stabilizers to limit the impact of the downturn on the labour market. Data published today show a surge in applications by firms for federal support to pay their workforces that are currently sitting idle. This underpins our call that, despite the massive sudden hit to economic activity, the total rise in unemployment for Germany and other major European economies may remain modest.
Historic jump: Germany’s labour agency received 55k applications for employment support for 1m workers through the “Kurzarbeitergeld” scheme, according to preliminary data as of 25 March. That is an unprecedented jump of applications for Germany’s government support for temporary under- or unemployment on the job from 2k and 42k respectively in February. The labour agency stressed that these numbers would probably understate total applications. We expect the numbers of applications to rise further in April.
Lessons from the global financial crisis (GFC): Job retention schemes can limit the number of dismissals,even in a sharp downturn. Partly due to Kurzarbeitergeld, German employment fell by just 1% during the GFC of 2008/09, despite a 7% peak-to-trough plunge in real GDP. During the 2008/09, some 1.4m workers were registered for the reduced/no working hours subsidy. To fight the economic fallout of the Covid-19 pandemic a number of countries (UK, France etc.) have introduced similar job retention schemes.
German labour market data for March (published earlier today) surprised a little on the upside. But they largely reflected the pre-lockdown period. The cut-off date is usually mid-month. Unemployment fell to 2.335m, while the rate was stable at 5%.
Florian Hense
Economist
BERENBERG
Joh. Berenberg, Gossler & Co. KG
London Branch
60 Threadneedle Street
London EC2R 8HP
United Kingdom
Phone +44 20 3207 7859
Mobile +44 797 385 2381
Fax +44 20 3207 7900
E-Mail florian.hense@berenberg.com
Joh. Berenberg, Gossler & Co. KG is a Kommanditgesellschaft (a German form of limited partnership) established under the laws of the Federal Republic of Germany registered with the Commercial Register at the Local Court of the City of Hamburg under registration number HRA 42659 with its registered office at Neuer Jungfernstieg 20, 20354 Hamburg, Germany. A list of partners is available for inspection at our London Branch at 60 Threadneedle Street, London, EC2R 8HP, United Kingdom. Joh. Berenberg, Gossler & Co. KG is authorised by the German Federal Financial Supervisory Authority (BaFin) and subject to limited regulation by the Financial Conduct Authority, firm reference number 222782. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. For further information as well as specific information on Joh. Berenberg, Gossler & Co. KG, its head office and its foreign branches in the European Union please refer to http://www.berenberg.de/en/corporate-disclosures.html