Short-time Work In Times Of Geopolitical Crisis

Short-time work is a proven policy instrument for dealing with times of crisis, but not every economic uncertainty justifies short-time work.

The German economy faces multiple crises in 2026: geopolitical conflicts, disruptions to global supply chains, volatile energy prices, industry-specific declines in demand, and continued high interest rates leading to reluctance to invest. The factors currently causing significant planning uncertainty are manifold. Short-time work is a proven labour market policy instrument available for such situations. However, not every economic uncertainty justifies the introduction of short-time work. The following article explores the conditions under which current economic developments can provide a viable basis for its implementation.

Short-time work and short-time work compensation

Short-time work compensation is one of the most important labour market policy instruments for managing temporary declines in employment. It enables employers to retain their workforce during economically challenging times by partially compensating workers for lost working hours through government benefits. While employees receive compensation for the resulting loss of earnings, employers are relieved of the immediate consequences of the economic and operational risks.

However, short-time work compensation does not protect companies from every business risk. If only general business risk materialises, this risk generally remains on the employer. This includes, in particular, typical market risks such as rising procurement costs or ordinary fluctuations in demand. A claim for short-time work compensation is only granted if: 

• there is a significant loss of working hours with a corresponding loss of earnings,
• which is due to economic reasons or an unavoidable event, 
• is temporary, and 
• cannot be reasonably avoided by the employer. 

Especially in the current multi-crisis economic situation, the distinction between eligible economic causes and general business risk is therefore crucial. 

Geopolitical crises as an economic reason for short-time work?

Geopolitical crises can, in principle, constitute economic causes for a significant loss of work within the meaning of the law. However, the decisive factor is not the crisis itself, but its specific impact on the individual employer. Short-time work can therefore not be justified by the general global situation, but only by the resulting operational disruptions.

Disruptions in the supply chain and raw material shortages

The current war in Iran and the associated disruptions to key trade routes such as the Strait of Hormuz once again highlight the vulnerability of international supply chains to geopolitical developments. The resulting disruptions to the flow of goods can quickly manifest as delivery delays or raw material shortages elsewhere. For example, if a supplier can no longer provide necessary raw materials or intermediate products due to disrupted shipping routes, and production must therefore be reduced or temporarily halted, this can, in principle, constitute a significant loss of employment due to economic reasons within the meaning of the short-time legislation.

Also relevant in practice are situations in which supply chain disruptions do not have an immediate impact, but rather a cascading effect. Companies in the middle of the supply chain can be affected even if it is not their own suppliers that fail, but rather their customers who reduce production due to a lack of intermediate products, resulting in the cancellation or postponement of orders. Such indirect effects are a characteristic of the division of labour in modern value chains, and they can lead to significant job losses.

Rising energy prices

Rising energy prices resulting from geopolitical conflicts do not, in themselves, generally justify the granting of short-time work compensation. Pure price increases, including significantly higher costs for gas, electricity, or other operating resources, are generally considered part of the general business risk. Therefore, if a company decides to reduce production due to increased costs, this is usually insufficient to justify a substantial loss of work for purposes of the short-time law. The situation is different, however, if there are not only price increases but also actual supply shortages. For example, if government intervention, such as measures by the Federal Network Agency (BNetzA) to regulate gas supply, leads to concrete restrictions in energy delivery, this can constitute an unavoidable event, provided the business is directly affected.

Declining orders due to economic uncertainty

Finally, current geopolitical tensions and the ongoing reluctance to invest are increasingly impacting the order books of many industrial companies. In particular, weaker demand for capital goods is leading to noticeable order declines in parts of the manufacturing sector. Such cyclical order declines can, in principle, justify a significant reduction in working hours. This is especially true when order intake declines across all sectors, projects are postponed or cancelled, or a general investment freeze among customers becomes apparent. This is distinct from cases where only the individual company’s sales risk materializes. Sustained declines in demand, technological displacement, or sales problems resulting from business decisions are part of the general business risk and, in themselves, do not justify short-time work.

Takeaway for employers

Short-time work will remain a key instrument for stabilising employment in economically volatile times in 2026. Supply chain disruptions and cyclical declines in demand resulting from geopolitical crises can justify a reduced working hours regime. However, a clear distinction between general business risk and reduced working hours due to economic factors is crucial. In practice, this means that a thorough and understandable presentation of the specific operational impacts to the Federal Employment Agency is essential. This includes, in particular, proof in the form of incoming orders, order backlogs and cancellations, production capacity utilisation, material availability, and documented attempts at replacement procurement or internal compensation. The better the documentation of economic causes, time-based forecasts, and mitigation measures, the greater the chances of success in the process before the Federal Employment Agency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.