Is Germany Getting It Right?

An unusual government program that keeps German workers on the job during the pandemic was just extended. Wise economic policy or extravagance?

When Germany’s economy appeared to be on a pandemic-pushed brink earlier this year, its government gave companies cash to keep employees on the payroll. Now, with the virus looking less threatening, some thought the helping hand might be removed. That wasn’t quite what happened.

Instead, the government extended the program, which began in the spring and allows employees to get almost nine-tenths of their salary (87%) when they work less than a full week or aren’t working. Even if employees have no work to do, they still will be paid by their employer—now through the end of 2021.

Critics say the aid may be extravagant—in the United States, unemployed workers initially received a stimulus check and $600 in extra cash a week, but no actual job. In this case, Yannick Binvel, president of Korn Ferry’s Global Industrial Markets practice, says Germany is trying to keep its unemployment low and help companies maintain an employment relationship with their workers. When the company’s workload increases, then the employees spend more time at work. “We prefer to have people attached to companies rather than claim unemployment benefits,” he says.

So far, unemployment there has stayed low—at 4.4%, far below the rest of Europe. Unemployment aside, experts say the program was also aimed at reducing social unrest and curtailing the rise of extremist groups. Europe has witnessed such populist uprisings periodically since the financial crisis more than a decade ago. “The mentality is, how can we reduce the impact of the crisis on unemployment?” Binvel says.

Still, keeping workers connected to firms without much work to do may ultimately be a mixed blessing for the country’s corporate leaders and managers. On the plus side, companies are indeed continuing their relationship with employees rather than just laying them off if there’s no work. Some companies have been quite aggressive with furloughing employees but then they quickly bring back workers when needed. “Furloughs give you flexibility and buy you time, and you don’t lose that contact with your workers,” says Sonamara Jeffreys, Korn Ferry’s copresident of EMEA. Without that ongoing connection, many businesses could find themselves scrambling to find workers when an economic recovery arrives.

But the quick-to-furlough movement may mean employees who aren’t working may quickly lose their sense of purpose and find their skills waning, Jeffreys says. There’s also another risk in having employees paid to do nothing for long periods, says Binvel. “It is quite unhealthy to keep people away from work for too long,” he says. Their attitude might change toward work and going to an office or factory. “When people get used to not going to work, they get used to a different rhythm,” he says.

In response, some savvy companies are trying to keep their employees busy even if there’s no actual business. Multiple companies have set up online training programs for their workers to learn new skills. "There's an appetite for employees to stay connected and be engaged by using the time to up their skills,” Jeffreys says. Indeed, some companies are finding employee uptake for training higher than in normal times, she says.