Establishment-Level Trends

Similar development patterns emerge when looking at data from the IAB-Establishment Panel Survey calculated for 2000-12 (Figure 7.7, panels A-D). The numbers refer to data collected from establishments and therefore specifically depict firm reactions at the plant level. The time series of an unbalanced panel and two balanced panels are plotted, one balanced from 2000 to 2010 and the other balanced from 2000 to 2012. As can be seen from the figures, the severity of the crisis differs slightly for the three groups. However, the basic pattern is consistent.

These IAB-Establishment Panel Survey analyses therefore corroborate that employment grew slowly prior to the crisis and peaked during the

Figure 7.7. Annual employment growth, sales growth, separation rate and layoff

rates (2000-12)

Notes: Employment and sales growth rates according to the IAB-Establishment Panel Survey. The full sample is weighted by cross-section weights; the balanced sample is weighted by longitudinal weights. Sales are reported for the previous calendar year. Employment refers to employment on 30June in the current calendaryear. Separations and layoffs refer to the first six months of the current calendar year.

Source: Author's calculations based on the IAB-Establishment Panel Survey

Figure 7.7. Continued

(D)

upswing just before the Great Recession (panel A). However, employment declined only moderately as a response to the economic downturn. This is specifically surprising when regarding panel B, which depicts the sales growth in the same period. Panel B of Figure 7.7 clearly shows that sales plummeted substantially with the onset of the crisis and did not recover as quickly as employment growth (at least concerning the balanced panel from 2000 to 2010). The increasing sales shown by the balanced panel (2000-12) of Figure 7.7 panel B indicates that the crisis was only a temporary shock (and increasing sales can in part be attributed to exports to Asia;see Section 7.4). The two panels C and D of Figure 7.7 additionally show the separation and layoff rates at the establishment-level and furthermore highlight the mild response and the relative stability of the labour market during the economic downturn.

One important distinction has to be made when talking about Germany's productivity development. Not every sector was hit equally by the economic downswing, and this may additionally explain why Germany's productivity development pattern was unusual. Figure 7.8 compares the changes in gross value added, total employment, and average hours worked between the manufacturing sector and the whole economy during 2006-13. This figure illustrates that the 2008/9 recession mainly affected the manufacturing sector. Furthermore, within this sector it was primarily producers of investment goods and consumer durables, as well as their suppliers, who suffered from the recession. Additionally, owing to their dependence on the world economy, Germany's export-oriented firms incurred a demand shock and therefore were affected most strongly by the repercussions of the recession. In line with this, it is also the manufacturing sector which suffered the most severe employment losses. Notably, though, these effects rarely spilled over to more consumer-oriented services, as evidenced by the observable differences between manufacturing and the whole economy (Figure 7.8). The decline of total employment in the manufacturing sector had not recovered in 2010, again highlighting the disparities between manufacturing and the whole economy (which not only rebounded but increased its total employment compared to the precrisis level). Finally, the average hours worked declined much more severely in the manufacturing sector compared to the whole economy, indicating a reduction in labour productivity that was more pronounced in manufacturing than elsewhere.

Interim Conclusion

The macroeconomic overview of this section pointed out the unexpected behaviour of the German labour market in response to the Great Recession. While productivity plummeted in 2009, the labour market remained surprisingly resilient. Consequently, German establishments primarily adjusted employment on the intensive margin, as opposed to the extensive margin. This might be part of the explanation

Figure 7.8. Gross value added, total employment, average hours (2006-13)

Notes: Differences between manufacturing and the whole economy 2006-13. Gross value added, employment and hours indexed 2006.

Source: German Federal Employment Agency

for Germany's rather quick productivity recovery in the months directly following the crisis.