During the last recession, from 2007 to 2009, the unemployment rate in the United States rose by 5.6 percentage points, peaking at 10%. Germany endured the same recession, but unemployment only rose by 0.7 points, to 8.3%. And Germany recovered from the recession faster.
Unemployment is spiking once again amid the coronavirus pandemic, with some economists predicting it could hit 15% or more in the United States. Congress is providing hundreds of billions of dollars to help the newly unemployed pay their bills. But some think adopting parts of the German model would keep job losses lower and make it easier for companies to ramp up production once things get back to normal.
Former Vice President Joe Biden has now proposed a form of the German model for the U.S. labor market, saying he aims to “transform unemployment insurance into employment insurance.” Germany and other European nations use a system called short-time work, or short-time compensation, that provides federal aid to companies that reduce worker hours instead of laying them off. The idea is to keep workers on the payroll and attached to a company until business conditions pick up. As demand falls, companies scale back hours but don’t lay workers off. The government makes up some of the lost pay. Employers benefit since they don’t have to bear the cost of rehiring once the recession is over.
“It's a much better system,” former Democratic presidential candidate John Delaney says on the latest episode of the Yahoo Finance Electionomics podcast. Delaney, who suspended his campaign in January, has been advising the Biden campaign on its short-time plan. “The benefit of that program is it targets industries that are most affected,” he says. “You create a system where workers get full compensation and they stay employed so they keep their benefits.”
Helping people keep their jobs
Biden, the likely Democratic presidential nominee, wants to change the focus of the U.S. system from helping people who have lost their jobs to helping people keep their jobs. About half the states have short-time programs now, but there’s no national standard or federal support. Biden wants to fund short-time compensation completely at the federal level, allowing all states to take advantage of it and raising funding levels above what’s available now. Participating companies would also get tax breaks to help offset the cost of keeping health care and other benefits for workers. Small businesses would still qualify for other forms of aid and wouldn’t have to choose one program over another.