Introduction – DE

Traditionally a high-wage country, Germany has lately resorted to wage restraint and labour cost competition in order to defend its international competitiveness. As a result, restructuring, which was dramatic between about 1985 and 1995 with German unification in the middle of the period, seems to have recently slowed down before the financial and economic crisis of 2008.

Because of its dependence on the global market and the weakening of internal demand, Germany has economically been particularly hard hit by the crisis. Using financial reserves accumulated during the last upturn, highly developed mechanisms of internal flexibility, a pronounced willingness on the part of workers to make concessions for job stability, and generous provisions for short-time allowances, German firms followed strategies of hoarding labour in expectation of an early recovery.

After the crisis, Germany’s economy recovered strongly (see the picture for the general labour market trend) and went immediately from stagnation to boom; regarding the Germany’s specific devolopment the Economist was speaking from “Germany’s new Wirtschaftswunder”. The macroeconomic trend seemed to be disconnected from the current European crisis, not least due to the dependency of companies in markets outside Europe.


1: Employment and unemployment in Germany (1991 – 2012; ILO principle)

Employment and unemployment in Germany (1991 – 2012; ILO principle) – Statistisches Bundesamt


Restructuring and job transfer schemes

In cases when restructuring becomes inevitable, the main mechanism for managing this socially is what we describe as ‘job transfer schemes’. It is embedded in Germany’s particular model of co-determination (Mitbestimmung), the legally regulated system of representative labour relations at company and workplace level.

As early as the 1950s, worker representatives on the supervisory boards of coal mining and steel companies exerted their exceptional legal voting powers in order to coerce management into negotiating social plans (Sozialpläne) for pit closures. In those days, structural change could still be conceived as taking place within the secondary sector (e.g. shutdown of coal mines compensated by opening oil refineries), and social plans worked as a lubricant for job transitions between declining and expanding sectors of production.

The 1972 amendment of the Works Constitution Act (Betriebsverfassungsgesetz) universalised the legal provision of the social plan for the entire private sector in companies employing at least 20 people. If a works couneil has been elected and an employer intends to restructure operations (Betriebsänderung) in ways that imply ‘considerable’ risks for relevant parts of the workforce, the works council has the legal power to negotiate a social plan. From the mid-1970s, employment in manufacturing began contracting, service jobs started to outnumber manufacturing jobs, job transitions within manufacturing became less likely, and unemployment began to rise. Social plans consequently became financially more generous but less effective in supporting job transitions.

This regression was completed when the government, in its attempts to contain unemployment, opted for shorter working lives rather than shorter working weeks, offering older workers extended periods of eligibility for unemployment benefits that led into premature pensions. Social partners, unemployment insurance and pension funds worked together in producing what developed into the specifically German pathway to early retirement. Reacting to the steel crisis of 1987, the legislature allowed these pathways to begin even earlier by granting short-time allowances – traditionallv an instrument for bridging cyclical underemployment – for extended periods to workers who were already technically redundant and not working (‘short’ but rather zero hours). In order to prevent misuse of this provision as a general wage subsidy, companies were obliged to transfer their redundant but still formally employed workers into a separate payroll subunit, from where an organised return to the active workforce was not permitted.

Thus the social plan, originally a mobility support created within bi-partite framework (negotiations between workers’ representatives and the employer), became universalised and embedded in a tri-partite arrangement (an understanding between employers’ organisations, trade unions and the state) for deactivating surplus labour. This was facilitated by the corporatist governance of the social insurance funds and may be seen as part of Germany’s ‘coordinated economy’. This was the institution al setting in which Germany was taken by surprise by its unification in 1990. The German government inherited responsibility for the East German companies that had been officially owned by ‘the people’. Monetary union and western competition caused these companies to abruptly lose most of their markets, and rapid privatisation was pursued as the only strategy to save at least a tiny proportion of their jobs. Long job tenure meant that East German workers enjoyed extended periods of notice and, according to German labour law (now also an European Directive), potential investors were required to buy into existing employment contracts.

Under these circumstances, in order to make companies attractive to potential investors, an instrument was needed that would immediately sever labour contracts and shorten payrolls without compromising workers’ rights. The solution arrived at after a considerable struggle was to extend short-time allowances for redundant workers to the East German manufacturing sector as a whole and to accept that the separate payroll subunit to which the workers were to be transferred was actually a separate legal entity (usually a limited company) created for this specific purpose. Thus redundant workers would spend their periods of notice or longer under a fixed-term contract with a substitute employer, whose wage costs were subsidised with short-time allowances paid by the unemployment insurance fund. The former employer (in effect the German government) was required to assume the remaining costs, primarily for holidays and paid leave, for which by definition there can be no loss of work to be compensated by short-time allowances.

This mechanism was universalised throughout Germany after 1994 in response to accelerated structural change in the West following the unification boom. Thereafter, repeated legal amendments and sectoral initiatives by social partners transformed the East German severance instrument into an instrument for supporting job transitions. A small industry of ‘transfer companies’ emerged as temporary substitute employers and providers of transfer services such as skills profiling, occupational reorientation, re-training, job search training and support, and job brokering. A transfer company will be commissioned by the employer (in consultation with the works council) and formally ‘employ’ voluntary participants for a limited period of time, their only task being to work on their own career. Wage costs are shared between the former employer and the unemployment insurance fund through short-time allowances, currently granted for a maximum of 12 (previously 24) months.

The cost of the services provided to participants must be borne by the former employer as part of the social plan, possibly supplemented by training grants from the European Social Fund (ESF), although these are of uncertain availability. Until recently, this model functioned as an (activated’ version of the traditional corporatist arrangement. Its principle features are its embeddedness in industrial relations at company level and the largely passive role of the Public Employment Service (PES) as a provider of part of the funding. In each individual company case, the precise conditions of a transition scheme (e.g. duration, income supplement to short-time allowances, severance payments, incentives, financial means available for services) depend on the terms of the social plan and thus on the financial strength of the company and the dexterity and wisdom of the negotiators. This makes for very unequal circumstances and outcomes, and the relative role of the PES has come under criticism in attempts to evaluate the scheme.

Paradoxically, recent legislative attempts to strengthen the role of the PES in job transition schemes seem to threaten the established model with deadlock. The social partners now have to involve the PES in their negotiations, advance cost and quality control procedures have been introduced, and participants are required to register with the PES as jobseekers. Criteria for the acceptability of job offers are the same as for the unemployed, even though transfer participants are still formally employed. As the privileged transition status is eroded, acceptance of such a scheme by redundant workers, their works councils and trade unions will diminish if it offers no advantage over straightforward unemployment.

As a consequence, companies will find themselves without an instrument that allows them negotiated flexibility in applying employment protection rules. Lawmakers no longer seem to consider job transition in the context of a corporatist arrangement but now see it as just another instrument of active labour market policy to be controlled by the PES. This can be understood against the backdrop of the drastically diminished role of the social partners in running the PES as a result of the Hartz reforms. Without an overarching corporatist consensus, the German multi-actor model (employer, works council, trade union, PES and transfer companies) of supporting job transitions seems to be in danger of ending in deadlock. It is therefore time to look at other countries’ models in search of ideas for a way out of this situation.


Against this background, ‘anticipation’ of restructuring is not a major issue in Germany, neither in the sense of forecasting nor in the sense of making firms and workers more adaptable to radical change. Since the mid-1990s, the public debate has concentrated on deregulating the employment relationship in order to increase ‘flexibility’, and some inroads have been made with regard to EPL coverage and the regulation of temporary employment.