Job Security in America : Lessons from Germany

American employers rely heavily on layoffs to reduce the size of their work force during downturns. While layoffs are unavoidable in any competitive economy, they are far more common in the United States than in other industrialized countries. But can US workers be offered more secure employment without burdening the companies that employ them?. Katharine Abraham and Susan Houseman address this question by comparing labor adjustment practices in the US where existing policies arguably encourage layoffs, with those in Germany, a country with much stronger job protection for workers. Based on statistical analysis of the two countries' manufacturing sectors, they conclude that German policies generally have been successful in providing workers with more stable employment without inhibiting labour adjustment. In their assessment of the German experience, Abraham and Houseman emphasize the interaction of various labour market policies. Stronger job security in Germany has been accompanied by an unemployment insurance system that facilitates short-term work as a substitute for layoffs. In the US the unemployment insurance system has encouraged layoffs while discouraging the use of work-sharing schemes. The authors recommend reforms of the US unemployment insurance system that include stronger experience rating and an expansion of short-term compensation programs. They also point to the critical link between job security and the system of worker training in Germany, and advocate policies that would encourage more training by US companies.