The scheme, known as Kurzarbeit in German, allows firms hit by the recession to cut costs by keeping employees at home or shortening their working hours without making them redundant.
The state then pays up to 67 percent of a worker's salary for a period of up to two years. The latest data from September showed around one million workers were covered by the scheme.
The programme had been due to expire on December 31, 2009 and is now set to be extended by a year, although for firms applying next year the state will only pay out for a period of 18 months instead of 24 months.
Although Germany has suffered this year its worst post-war recession, the downturn has not been mirrored by a sharp rise in the number of people out of work.
Germany's raw unemployment rate fell to 7.7 percent from 8.0 percent in September, as the country's economy, which accounts for one-third of eurozone output, showed signs of recovery.