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How Germany dealt with the recession-jobs conundrum

We all know what happened in the United States during the Great Recession:  Millions of Americans lost their jobs, the unemployment rate skyrocketed and we’re still suffering the consequences.Here’s something that’s less well known: In Germany between 2007 and 2009, the opposite happened and the unemployment rate actually fell, according to a report released last week by the Center for Econ
Unemployment rate change by country. The OECD uses a \"harmonized\" unemployment measure because not all countries measure unemployment in the same way.
Unemployment rate change by country. The OECD uses a \"harmonized\" unemployment measure because not all countries measure unemployment in the same way.Center for Economic and Policy Research / Today

We all know what happened in the United States during the Great Recession:  Millions of Americans lost their jobs, the unemployment rate skyrocketed and we’re still suffering the consequences.

Here’s something that’s less well known: In Germany between 2007 and 2009, the opposite happened and the unemployment rate actually fell, according to a report released last week by the Center for Economic and Policy Research, a liberal-leaning economic think tank.

Germany’s economy, which is heavily dependent on world trade, did suffer during the recession, said John Schmitt, an economist with the CEPR who prepared the report.  What differed was how the two countries responded to that economic weakness.

In the United States, most employers cut jobs. In Germany, they cut hours.

“There was widespread shift from full-time to fewer hours,” Schmitt said.

Germany has a much more highly unionized workforce than the United States, and some of those cutbacks came from negotiating over things like overtime and work hours, Schmitt said. Strong employee protections also made it more costly for some companies to lay off workers than to reduce hours, the report noted.

But Schmitt said another difference was that when employers cut back on hours, the government provided those employees with partial unemployment benefits. That compensated somewhat for the smaller paychecks, leaving consumers less cash-strapped than in the United States.

In the U.S., some employers reduced their workers’ hours, and there are currently about 8 million Americans who are working part-time but would like to be working full-time.

It was far more typical for employers to cut jobs completely when work slowed, and there are still 14 million unemployed Americans. The employment situation has left many Americans tight on cash and unwilling to spend freely, hampering the economic recovery further.

Schmitt said there are some states that allow workers to collect partial unemployment if their hours are cut back, but few Americans actually use it.