Public Sector Shock

Public Sector Shock

The Impact of Policy Retrenchment in Europe

Edited by Daniel Vaughan-Whitehead

The goal of this volume is to study this ‘public sector shock’. While budgetary reforms seek to ensure a more balanced and sound economic policy, they may generate new work inequalities among public sector employees, most particularly among women, who account for a considerable proportion of public sector employment. Cuts in education and training may also have an impact on the quality of human capital in both the public and private sectors, despite the fact that the recent crisis has shown the value of education as employees with better skills and training are more likely to maintain their jobs and incomes.

Chapter 6: Public sector adjustments in Germany: From cooperative to competitive federalism

Gerhard Bosch

Subjects: economics and finance, labour economics, public sector economics, social policy and sociology, economics of social policy, labour policy


Although the German economy experienced its most severe slump since the Second World War in 2008–09, employment did not fall and unemployment did not increase. The effects of the recession were absorbed by firms mainly internally, despite massive declines in orders in manufacturing industry. This German ‘job miracle’ was made possible by two stimulus packages together totalling some €70 billion and temporary reductions in working hours through short-time working, the use of working-time accounts, reductions in overtime and increases in part-time work (Bosch 2011). The German economy recovered quickly because of the strong increase in exports, mainly to East Asia and the BRIC (Brazil, Russian Federation, India, China) countries, which were less affected by the financial crisis. Output reached and then overtook its pre-crisis level in 2011 and exports grew to a new record level of over €1 billion. This smooth landing in the crisis and the fast recovery reduced pressures on the public sector. The stimulus packages were mainly used to fund public investments, which temporarily relieved the budgets of the highly indebted municipalities, which are the main public investors in Germany. Tax revenues increased to a new record level, substantially reducing the government budget deficit in 2011.

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