Cece G- Germany Unemployment and Demand-Side Policy

    Countries are able to decrease unemployment by enacting fiscal and monetary demand-side policies. These include increasing government spending (fiscal policy) or decreasing interest rates (monetary policy), both working to shift aggregate demand to the right. This stimulates the economy during a recession by having firms increase labor efforts to satisfy demand and, consequently, maintain/boost employment rates.     In recent years, Germany has faced sharp decreases in employment primarily due to the economic downturn during the COVID-19 pandemic. To counteract this decline, the government has created a short-time work program called Kurzarbeit, which aims to keep employment stable during this financial crisis. The program is a form of government spending (fiscal policy) that subsidizes employers' payrolls, reducing employees' hours but still providing workers with their normal pay. This protects workers' income and, in turn, supports aggregate demand during this recession. It also allows companies to retain their workforce and cuts back on the additional cost of re-hiring and training.     Despite this government spending being largely beneficial to the workforce, many claim it will not work in the long run and could potentially reduce labor market flexibility (keeping workers in jobs that need to disappear) and disproportionately detriment workers in less protected segments of the labor market. Overall though, the program serves as a great way to boost aggregate demand and provide support for the workforce in times of crisis, and since its implementation, it has partially stabilized the German economy. 















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