Labor Demand During the Crisis:What Happened in Germany?

In Germany, the employment response to the post-2007 crisis has been muted compared toother industrialized countries. Despite a large drop in output, employment has hardlychanged. In this paper, we analyze the determinants of German firms’ labor demand duringthe crisis using a firm-level panel dataset. Our analysis proceeds in two steps. First, weestimate a dynamic labor demand function for the years 2000-2009 accounting for the degreeof working time flexibility and the presence of works councils. Second, on the basis of theseestimates, we use the difference between predicted and actual employment as a measure oflabor hoarding as the dependent variable in a cross-sectional regression for 2009. Apart fromtotal labor hoarding, we also look at the determinants of subsidized labor hoarding throughshort-time work. The structural characteristics of firms using these channels of adjustmentdiffer. Product market competition has a negative impact on total labor hoarding but apositive effect on the use of short-time work. Firm covered by collective agreements hoardless labor overall; firms without financial frictions use short-time work less intensively....