Germany wants to extend short-time work allowance to two years

BERLIN (Reuters) - German Labour Minister Hubertus Heil wants to extend the maximum duration of the short-time work allowance to 24 months from the current 12 months to avoid an increase in unemployment, according to draft regulation seen by Reuters on Thursday.

"In the absence of any extension of the duration of benefits, it can be assumed that there would be significant staff cuts in the companies affected by short-time work," the draft said.

Short-time work, or Kurzarbeit, is a form of state aid that allows employers to switch employees to shorter working hours during an economic downturn to keep them on the payroll.

The number of people out of work in Germany rose in November to 2.86 million, approaching the 3 million mark.

What has so far been a resilient labour market is starting to feel the impact of economic weakness. Unemployment is seen edging higher this year to 6.0% from 5.7% in 2023, according to government forecasts.

Due to the subdued economic outlook, the number of unemployed is expected to continue to rise next year.

The government - now without a majority following the departure of the Free Democrats from Chancellor Olaf Scholz's coalition - can pass the regulation without parliament. Sources expect the cabinet of Social Democrats and Greens to approve it before Christmas.

The country is heading for early elections on Feb. 23, with both governing parties lagging far behind the opposition conservatives in polls.

The Federal Employment Agency expects additional expenses of 260 million euros ($273 million) for short-time work due to the extension of the payment period, according to the draft. This would be offset by lower expenses of an unquantifiable amount for otherwise due unemployment benefits. ($1 = 0.9520 euros)

(Reporting by Holger Hansen, writing by Maria Martinez; Editing by Keith Weir)