Employees often face salary cuts after company insolvency

employees often face salary cuts after company insolvency

Employees of a company that has become insolvent are threatened with sometimes substantial salary losses in the further course of their working lives.

On average, even five years after their former employer went bankrupt, they earned around 4,000 euros less per year than before the insolvency, the institute for employment research (IAB) reported in a study published on friday. However, the risk of becoming a victim of company bankruptcy varies greatly from region to region.

In the first year after the insolvency, the salary penalty compared to previous earnings is as high as 7,000 euros, but then gradually decreases, reported the think tank of the federal employment agency (BA). Even five years later, the difference has still not been completely made up. The IAB based its study on current social security data from the federal agency, which it linked with personal data.

Employees of an insolvent company were also at greater risk of becoming unemployed than employees of economically stable companies. In the first year after bankruptcy, the average duration of unemployment for those affected by insolvency was 40 days longer than for the comparable group. Even after five years, the difference still averaged ten days, according to labor market researchers.

Overall, however, the risk of becoming the victim of a company insolvency as an employee is "rather low". Since 2010, it has hovered at just over 0.6 percent, apart from the more severe consequences of the major bankruptcy of the schlecker drugstore chain in 2012. The researchers compared the number of people affected by insolvency with the total number of people in employment. However, the risk is very unevenly distributed – depending on the size of the company, the age of the company and the sector in which it operates.

The risk of insolvency for employees in smaller companies with fewer than ten employees is almost four times as high as for employees in companies with 250 or more employees. Almost eight times as much for employees of young companies that are no more than two years old. The risk of not having a job or having a significantly lower-paid job due to insolvency is particularly high in the construction and gastronomy sectors.

Regionally, the risk of insolvency is particularly high for employees in berlin and saxony-anhalt, according to IAB findings. It is 0.91 percent here, while in the economically prosperous states of bavaria and baden-wurttemberg it is only about half that. "Employees in the eastern german states tend to be at higher risk than their counterparts in the west," the study authors emphasized. Only in saarland and bremen is it as high as in the new federal states.