RBA defines Australian Kurzarbeit

From the RBA:

A firm’s demand for labour is derived from the demand for its output. During a downturn in demand, firms can reduce their use of labour by reducing either the number of workers they employ (the ‘extensive margin’ of labour adjustment) or by reducing the hours worked by their employees (the ‘intensive margin’ of labour adjustment).2 From an economy-wide perspective, whether adjustment occurs through the number of employees or average hours worked by each employee has implications for the costs of a downturn. If workers have their hours reduced but remain employed, many of the costs associated with unemployment, such as skill atrophy and reliance on government assistance, are mitigated. The nature of adjustment also has implications for the measurement of spare capacity in the economy. If significant adjustment can occur through average hours, then policymakers should monitor alternative measures of spare capacity – such as the underemployment rate, which takes into account whether employees would like to work more hours – in addition to the unemployment rate, which is based on headcount.

A firm’s choice of whether to adjust the number of employees or the hours worked by current employees depends on a range of factors. If the costs of hiring and firing workers are non-trivial, then firms may choose to adjust hours rather than make employees redundant. Expectations of future demand are also important, as firms may be more inclined to adjust working hours if the downturn in demand is expected to be relatively short and shallow. Labour market institutions are also relevant. For example, laws and regulations or wage determination processes may provide incentives for firms to adjust via employee numbers or hours worked. Figure 1 provides tentative evidence that Australian firms have made use of both types of adjustment, with downturns in total hours worked reflecting declines in both employment growth and average hours worked.

In this paper we explore the nature of cyclical labour market adjustment in Australia. That is, we focus on deviations of labour inputs from their longer-run trends, such as during downturns in the economy. The first part of our paper uses aggregate time series data to estimate the relative importance of employment and average hours adjustment. We find that, while both employment and average hours worked tend to adjust over the cycle, the share of labour market adjustment due to changes in average hours worked has increased since the late 1990s. Indeed, the contribution of average hours to the cyclical variability in total hours worked has tripled, from 20 per cent over 1978–98 to 58 per cent over 1999–2016. Such a large increase in the importance of average hours adjustment was not observed in other developed economies, such as the United States, Germany and Japan (e.g. Merkl and Wesselbaum 2011; Kakinaka and Miyamoto 2012).

MB has been tracking this Kurzarbeit evolution for several years. It’s amazing that we actually do it far better than Germany without all of the formal guff. The RBA stiffs put this unique labour market flexibility down to:

Since the late 1990s, a larger share of cyclical labour market adjustment in Australia has come about via changes in average hours worked, as opposed to changes in employment. While empirical evidence is inconclusive (partly due to the difficulty in modelling average hours worked), our view is that the relatively short and shallow economic downturns in the 2000s have played a role in this. Had these downturns been more severe, like the recessions in the 1980s and 1990s, firms eventually may have needed to shed more workers than they did. In other words, it is likely that both employment and average hours tend to adjust in the early stages of a downturn, but relatively more adjustment occurs through employment as the downturn persists and becomes more severe. It is also possible that labour market reforms over recent decades have provided firms with more scope to reduce their use of labour by reducing working hours rather than by redundancies. We also find that the main driver of the adjustment in average hours during the 2008–09 economic downturn was a reduction in hours worked for employees who remained in the same job (i.e. labour hoarding). Consistent with this, a longer-run historical analysis suggests that changes in the composition of employment have not been the main driver of the decline in average hours during downturns and recessions.

No doubt but in my experience the major driver is cultural. Australians do not like sacking their co-workers and the national spirit of volunteerism rises up when it comes to sharing the burden of labour cost cuts, as shared hour reductions rather than reduced head count aimed at the unlucky.