Coronavirus: Could UK adopt German pay top-up scheme?

By Robert Plummer
Business reporter, BBC News

Related Topics
image source, EPA
image captionMercedes and other German carmakers have used government money to subsidise wages

Unlike the UK, the Germans didn't have to invent a job support programme from scratch when the pandemic struck: they already had one oven-ready.

While British companies were getting to grips with the novelty of furloughing workers at the government's expense, their German counterparts simply fell back on a tried and tested scheme.

Now, while UK Chancellor Rishi Sunak is insisting that the Coronavirus Job Retention Scheme will not continue past October, Germany is extending its Kurzarbeit job subsidy measures until the end of 2021.

At the same time, France is following Germany's example and expects to be doing so for a couple of years.

In the UK, influential figures including former prime minister Gordon Brown are urging the government to bring in a German or French-style system after October.

So what are the German and French schemes and how do they work?

Germany's Kurzarbeit

"I'm very glad we have this system," says Dr Volker Verch, director of the Central Westphalian employers' federation.

"We would have lost many more jobs, in my region and across the country, if we didn't have this Kurzarbeit," he told the BBC.

"Obviously it all has to be paid for, but it's worth it in terms of social harmony."

When the British scheme began, it was based on paying workers to stay at home and do nothing. It was not until July that furloughed employees were able to go back to work part-time.

However, the German system was always about short-time working - allowing employers to reduce employees' hours while keeping them in a job. The government pays workers a percentage of the money they would have got for working those lost hours.

image source, Robert Hack
image captionRolls-Royce Power Systems employs 5,500 workers in Germany

According to the Munich-based Ifo Institute for Economic Research, at the height of the pandemic, half of all German firms had at least some of their staff on the scheme.

That includes Rolls-Royce Power Systems, a German engineering company owned by Rolls-Royce Holdings and specialising in power generation and propulsion systems. It employs 9,000 people worldwide, 5,500 of them in Germany.

Chief executive Andreas Schell told the BBC that the company came relatively late to the Kurzarbeit scheme.

"When the crisis came, we were sitting on a good order book," he says. "But we anticipated a reduction in orders, and we had less to do in the third quarter, so we had to adjust our capacity."

In June, the firm put 1,000 of its German employees on "short-time working". That rose to 1,800 in July, before falling back in August and September as workers went on holiday instead.

"It's a really good programme of support by the German government," says Mr Schell. "Otherwise we would have suffered economically. But it also helps to mitigate the economic consequences for our employees. It offers flexibility to us as a company and that's a good thing."

image source, Robert Hack
image captionAndreas Schell has nothing but praise for the Kurzarbeit scheme

Kurzarbeit has a long pedigree, going back to the early 20th Century. However, it came to prominence during the global financial crisis of 2008-09, when it is thought to have saved up to half a million jobs.

Even in normal times, it can be used by companies undergoing restructuring or suffering from seasonal fluctuations in their business.

But normally it lasts for only six months. During the pandemic, that has been increased to a maximum of 21 months, while the criteria have been changed to include more firms and workers.

The percentage of lost wages paid by the government will also go up in stages, from the usual 60% to 80% after the first six months.

In comparison with the UK's furlough scheme, the cost of Kurzarbeit seems relatively modest, perhaps reflecting its more limited scope.

Berlin ploughed €23.5bn into bolstering the scheme at the start of the pandemic, then expanded it again in August, at an estimated cost of €10bn more, to run for all of next year.

By contrast, the Office for Budget Responsibility has estimated that the UK's furlough scheme will have cost £60bn, about twice as much as the Germans are spending, by the time it ends in October.

France's 'chômage partiel'

The French scheme, known as "partial unemployment" or "partial activity", also pre-dates the coronavirus pandemic.

It too is designed to subsidise the jobs of people on reduced working hours - and it's also intended for the long haul.

Under the French scheme, firms are allowed to cut employees' hours by up to 40% for up to three years. Employees still receive nearly all their normal salary, with the government paying a percentage of the cost.

The scheme is subject to all kinds of French bureaucracy, requiring firms to come to an agreement with unions and offer formal guarantees of job security, but the principle is the same as in Germany.

image source, CIC-Orio
image captionCIC Orio is a specialist industrial firm

Olivier Six is chief executive of two very different firms, both based in the Grenoble area.

The bigger of the two, CIC Orio, is a metallurgy company that employs 150 people making industrial boilers and other specialised equipment. The other, G-Tech Guidetti, specialises in making hiking accessories.

"When the crisis began, there was a loss of confidence," he told the BBC. "Firms were sitting on their funds, nobody was paying anybody."

G-Tech Guidetti, as a consumer-facing firm, was immediately hit by the lockdown, because all its stockists had to close, so all its 15 employees went on the partial activity scheme.

"But after confinement ended, there was a pick-up in consumption and the recovery was very strong," he says.

CIC Orio, however, is still making use of the scheme. Its employees are currently working four days out of five, with the government compensating them for the lost day's earnings.

"It's fortunate that we have this scheme, because we're afraid that the crisis will come back again," he says. "This will last a long time. There will probably be another year of very weak economic activity."

The French government describes its scheme as a "bouclier anti-licenciements" - that is, an anti-redundancy shield.

For now, it appears to be working. But with cases of coronavirus on the rise again in France, it's anyone's guess how long it might be needed.

More on this story