According to a recent study by researchers at the Ifo Institute, shortening the duration of short-time work allowance could help alleviate the current shortage of workers in the labor market.
Ifo researcher Volker Meier notes that the economy currently faces labor shortages in many sectors, while simultaneously experiencing high unemployment in others. He suggests that reducing short-time work benefits for sectors that are shrinking would allow the available workforce to become more accessible to other industries in the medium term.
Currently, employees are entitled to short-time work benefits for a maximum of 24 months; this period was 12 months by 2019, and was even shorter in previous years. Ifo researcher Leander Andres argues that in its current form, short-time work allowance hinders labor market flexibility and acts as a temporary wage subsidy for companies. For employees, it also reduces the incentive to actively seek new jobs.
To make it easier for workers to transition from old industries to new ones, the study emphasizes the critical importance of targeted retraining and continuing education. Meier suggested a potential solution: offering higher benefits to those who are currently unemployed or receiving short-time allowances, provided they simultaneously participate in a reskilling program or change jobs.
Furthermore, the study authors propose several other measures to increase the labor supply, particularly from older individuals, women, and immigrants. These include scrapping the pension option of retiring at age 63 and increasing deductions for early retirement. They also recommend abolishing the spousal tax-splitting allowance if lower tax rates are applied to second incomes, and removing bureaucratic barriers regarding work permits and the recognition of qualifications for immigrants.
