From a source of weakness to a tower of strength? The changing German labour market

Despite the biggest economic slump in Germany since the Second World War, employment did not decrease. In other European countries, which have even been hit less hard, employment started to decrease significantly. This 'employment miracle' is a result of the high internal flexibility of the German labour market, which resulted in a strong reduction of average working time in the downturn, and labour-hoarding by employers. Cyclical working time reduction saved some 1.1 million jobs, labour hoarding another 2 million. Working hours were reduced via short-time working schemes, working time accounts, and variations in working time at the company level. As these measures had nothing to do with the labour market reforms in the years before the crisis, there is also no direct impact of these reforms on the employment miracle. Also wage moderation, which has been fuelled by these labour market reforms, had no positive impact on the overall labour market performance of Germany.