A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Eichhorst, Werner; Marx, Paul; Pastore, José Working Paper The use of flexible measures to cope with economic crises in Germany and Brazil IZA Discussion Papers, No. 6137 Provided in Cooperation with: IZA – Institute of Labor Economics Suggested Citation: Eichhorst, Werner; Marx, Paul; Pastore, José (2011) : The use of flexible measures to cope with economic crises in Germany and Brazil, IZA Discussion Papers, No. 6137, Institute for the Study of Labor (IZA), Bonn, http://nbn-resolving.de/urn:nbn:de:101:1-201112136887 This Version is available at: http://hdl.handle.net/10419/58570 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. IZA Discussion Paper No. 6137 November 2011 ABSTRACT The Use of Flexible Measures to Cope with Economic Crises in Germany and Brazil* This study gives a comparative overview of labor market dynamics and institutional arrangements in Germany and Brazil with particular emphasis on industrial relations, wage setting, unemployment benefits, employment protection and vocational training. The paper shows that institutions determine the mode of adjustment to changing economic conditions and the role of standard vs. non-standard contracts. Whereas internal flexibility via shorter working time was a dominant mode of adjustment during the 2008-09 crisis in the German manufacturing sector, in Brazil such plant-level flexibility to avoid dismissals was less prominent. JEL Classification: J21, J42, J52 Keywords: labor market flexibility, Germany, Brazil, working time, dismissal protection Corresponding author: Werner Eichhorst IZA P.O. Box 7240 53072 Bonn Germany E-mail: [email protected] * The authors are grateful for the support of Bradesco, CNI, Mercedes Benz, Fecomercio (São Paulo) and Sindipeças. The ideas expressed in this paper are the authors’ own. = 2 TABLE OF CONTENTS List of Tables ....................................................................................................................... 3 List of Figures ...................................................................................................................... 3 1 Introduction ..................................................................................................................... 4 2 The Socio‐economic background..................................................................................... 5 3 Labor market flexibility .................................................................................................... 6 3.1 Different forms of labor market flexibility................................................................ 6 3.2 Flexibility at the core and flexibility at the margin................................................. 10 4 Institutional features ..................................................................................................... 11 4.1 Industrial relations and wage setting in Germany.................................................. 11 4.2 Industrial relations and wage setting in Brazil........................................................ 16 4.3 Employment protection and flexible jobs .............................................................. 20 4.4 Taxes and labor cost ............................................................................................... 31 4.5 Unemployment benefits and minimum income schemes...................................... 34 4.6. Active labor market policies .................................................................................. 37 4.7 Vocational training.................................................................................................. 38 5 Labor market dualisms in Germany and Brazil .............................................................. 41 5.1 Germany.................................................................................................................. 41 5.2 Brazil: Non‐standard contracts and informality ..................................................... 45 6 Coping with the crisis..................................................................................................... 48 6.1 The use of flexible mechanisms in Germany .......................................................... 48 6.2 The use of flexible mechanisms in Brazil ................................................................ 51 7 Case Studies ................................................................................................................... 54 7.1 Company 1 – Extreme resistance, little flexibility .................................................. 54 7.2 Company 2 – Flexibility at very high price .............................................................. 55 7.3 Company 3 – Flexibility at affordable price ............................................................ 56 7.4 Company 4 – mild impact and no flexibility ........................................................... 57 8 A comparative assessment and policy conclusions ....................................................... 58 References ........................................................................................................................ 62 = 3 List of Tables Table 1: Basic socio‐economic figures ................................................................................ 5 Table 2: Flexibility at the margin....................................................................................... 10 Table 3: Gross hourly minimum wages in Germany (EUR and BRL per hour).................. 15 Table 4: Comparison of industrial relations and collective bargaining ............................ 20 Table 5: OECD Indicators of Employment Protection, 2008............................................. 24 Table 6: Cost of dismissal of an employee in Brazil who makes BRL 1,000 per month (about EUR 435) and has worked for the company for three years................................. 26 Table 7: Labor costs in manufacturing (% of gross wage), 2010 ...................................... 32 Table 8: The cost of legal contracts in Brazil, hourly workers .......................................... 33 Table 9: Types of contract, dismissal protection and unemployment benefit coverage in Germany............................................................................................................................ 36 Table 10: Comparative indicators on education............................................................... 40 Table 11: The different components of labor market reaction in Germany.................... 48 Table 12: The different components of labor market reaction in Brazil .......................... 53 List of Figures Figure 1: Number of cases filed in labor courts (total and concerning dismissals) and share of