NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Labor Adjustment Under Different Institutional Structures: A Case Study of Germany and The United States

Susan N. Houseman, Katharine G. Abraham

NBER Working Paper No. 4548
Issued in November 1993
NBER Program(s):   LS

Like most Western European countries, Germany stringently regulates dismissals and layoffs. Critics contend that this regulation raises the costs of employment adjustment and hence impedes employers' ability to respond to fluctuations in demand. Other German labor policies, however, most especially the availability of unemployment insurance benefits for those on short time, facilitate the adjustment of average hours per worker in lieu of layoffs. Building on earlier work, we compare the adjustment of employment, hours and inventories to demand shocks in the German and U.S. manufacturing sectors. We find that, in the short run, whereas U.S. employers rely principally on the adjustment of employment levels to respond to demand shocks, German employers rely principally on the adjustment of average hours per worker. The adjustment of overall labor input is generally similar in the two countries. Short-time work makes a very important contribution to short-run hours adjustment in Germany. We find little evidence that inventories help to buffer demand fluctuations in either country. Our findings suggest that, given appropriate supporting institutions, strong worker job security can be compatible with employers' need for flexibility in staffing levels.

download in pdf format
   (461 K)

email paper

This paper is available as PDF (461 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4548

Users who downloaded this paper also downloaded these:
Abraham and Houseman w4390 Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium
Abraham and Houseman Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium
Fuchs and Jacobsen w2089 Employee Response to Compulsory Short-Time Work
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us