LABOUR COSTS

Two developments initiated before the crisis, long-term stable labour costs coupled with stagnant wages, can be considered a result of labour market reforms, called the Hartz Reforms, in the previous decades. Rinne and Zimmermann (2013:4) even claim that the reforms 'made Germany less vulnerable to economic shocks'. Overall, the Hartz Reforms added to a favourable pre-crisis labour market condition by increasing employment growth and reducing unemployment. Additionally, they lowered unit labour costs, thereby increasing international competitiveness and allowing firms to build up financial reserves before the crisis.

Thus, compared to the world market, unit labour costs developed favourably owing to wage moderation or even wage stagnation from 2001 to 2008 (Burda and Hunt, 2011).14 This wage moderation resulted in part from reduced pressure during collective negotiations, because reforms made employees more willing to apply for less-paid jobs (Caliendo and Hogenacker, 2012). As employment additionally increased less than expected considering the preceding expansion, layoffs could be avoided during the recession.

 
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