Kurzarbeit – A Realistic German Approach To UBI?

Kurzarbeit - A Realistic German Approach To UBI?

The state-funded German safety net Kurzarbeit is a social insurance program whereby employers reduce their employees’ working hours instead of laying them off. It has ensured safety to millions of workers amidst the pandemic.

Crux of the Matter

Under Kurzarbeit, the German government compensates around 60% of the foregone net wages of an employee & 67% if the employee is a parent. The program can be initiated when employers need to cut wage costs and working times amid economic slowdown or any crisis like the COVID-19.

Main Features
Kurzarbeit is a crisis management tool to protect workers’ income and support aggregate demand. Since workers do not lose their jobs, they are secured while companies also retain their human capital.

The strong performance of employment during the global financial crisis bolsters domestic demand, with stable labour income supporting private consumption, and reduced the need for precautionary savings; thus opening the way to a rapid recovery.

A worker receives 60% of his or her pay for the hours not worked, whereas receives full payment for the hours worked. For example, a worker would only face a 10% salary loss for a 30% reduction in hours. In 2009, the German government was highly appreciated for saving nearly 500,000 jobs and keeping the unemployment rate below 8% during the recession using Kurzarbeit.

It has provided greater income protection during Covid-19. It provides 60% income for the first 3 months of reduced working hours, 70% income from 4th to 6th months, and 80% income from the 7th month. The maximum duration of the program is 21 months. During the pandemic, the coverage was expanded to temporary workers as well. Kurzarbeit can be applied for if employees’ working hours are reduced by more than 10% compared to 30% before Covid-19.

Critics say that Germany ‘s excessive reliance on Kurzarbeit can potentially reduce flexibility in the labor market, and increase the divide between workers in more and less-protected segments of the labor market.

Kurzarbeit subsidies could discourage restructuring of underperforming companies.

Jacob Kirkegaard, Peterson Institute for International Economics.

Following the pandemic, the German government has made this scheme more flexible, more attractive to employers, and more generous to employees while expanding coverage across sectors and across different types of jobs.

Universal Basic Income
On the contrary to Kurzarbeit, UBI is a periodic cash payment unconditionally delivered to every adult regardless of economic and employment status. UBI was proposed in the Economic Survey of India published in January 2017.

Incorporating UBI would bring more people into the formal banking system and also increase rural access to formal credit. Basic income increases the resilience to economic shocks but also increases the risks of a rise in inflation due to increased demand.

Current social welfare schemes like MNREGA, Ujjwala, Awas Yojana, etc. cost India about 4-5% of GDP, but UBI is expected to cost almost 6-7% of GDP. Experts say the ongoing social welfare schemes focus on long-term improvement on human development, rural infrastructure, employment and can’t be substituted by cash transfer. Seeing Germany as an example one can say that Kurzarbeit will prove to be highly expensive in the Indian context.

While some consider UBI as a universal right for everyone; some argue whether it should be distributed to rich or not. Many also believe that money should not be given to those who do not contribute to society through their labor and it is feared that employed workers would drop out of the labor force leading to encouraging idleness.

The idea of UBI is not new but in the past few years, it has been discussed widely on global platforms as a means of redistributing income. Unlike Kurzarbeit, UBI is based on the idea that society, as a first priority, should look out for its people’s survival.

  • A pay-as-you-earn tax (PAYE), in Australia and the United States, is a withholding tax on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns.
  • On 4 October 2013, Swiss activists celebrated the successful collection of more than 125,000 signatures, forcing the government to hold a referendum in 2016 on the decision to incorporate the concept of basic income in the federal constitution. They did so by dumping 8 Million coins on a public square in Bern, each coin representing each person of Switzerland’s population. 
  • If unpaid care work performed by women were compensated at even the minimum wage around the world, this would boost measured global economic output by $12 trillion. Hence the Scottish economist Ailsa McKay argues that basic income is a way to promote gender equality.