Germany's economy is expected to shrink by 6 percent this year, according to both the government and leading economic institutes. But the number of jobless has not skyrocketed, and that is due to the German practice of reduced working hours – not a new concept here, but routinely employed in crises like the 1970s oil embargo, and again after reunification in the early 1990s.

They are all deeply in the red: that is what Germany's leading businesses have in common these days when they look at their first quarter figures. But rather than lay off valuable workers, they've ordered reduced working hours.

More than a third of automaker Daimler's and roughly a quarter of BMW's employees, for instance, are working reduced hours. At chemical giant BASF, more than 4,000 people work shorter hours, and another 3,000 are to join them in June. Production at printer Heidelberger Druck is down to 11 days a month.

Instrument to stabilize the job market

About 1,4 million people worked shorter hours in April, says Germany's Federal Labour Agency. The labor market is stable as a result of these many shorter working hours, says agency chief Frank-Juerrgen Weise.

Employers revert to shorter working hours when the number of orders dwindles, but the firm wants to keep its skilled workers and specialists. While the employers only pay wages for the reduced hours, they do continue to pay the full social security dues.

Benefits are available from Germany's Labor Agency for a maximum of 18 months. Workers without children, for instance, can expect 60 percent of their last net salary, families with children are granted seven percent more. To top that, Labour Minister Olaf Scholz last week proposed taking over all social security payments from the companies after half a year, as well as extending the term of shorter working hours from 18 months to two years.

Dieter Hundt, President of the German employers' federation BDA, was initially opposed to extending to 24 months the option of reduced working hours. But he welcomed the government's plan.

"Discarding all social security payments is extremely important for the companies," he said after a meeting last week with Scholz and Michael Sommer, head of the DGB Labor Federation.

Here in Germany, social security payments include old age insurance, jobless insurance and health and nursing care insurance – all in all, more than 20 percent of the gross pay package. Supporting reduced working hours is expected to cost the Federal Labor Agency about 500 million euros for 100,000 people per year.

Critics fear abuse of Labor Office plans

Hilmar Schneider, director of Labor Market Policies at the Institute for the Future of Labor, IZA, is critical of the Labor Agency's policy of taking over all social security payments after six months of reduced work. A firm could keep on an employee but reduce his hours to zero, he explains, making him de facto unemployed. But that employee would still receive his full pay from the Labor Agency for 24 months. Then, the employee could register as unemployed – and would again be eligible for 24 months of financial support.

Firms could of course lay off workers, Hilmar Schneider says, but that is something the government is trying to prevent at all costs.

"With parliamentary elections in September," the labour market expert says, "the media would be full of mass lay-offs in time for the election."

Danhong Zhang/Dagmar Breitenbach/Rob Mudge