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German Workers Might Get Pay Increases, Call In the Central Bank!

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Saturday, 30 April 2011 08:31

The NYT reports that the low unemployment rate in Germany might allow workers to get higher wages, which could put upward pressure on the inflation rate. The only sources cited in this story are Jean-Calude Trichet, the head of the European Central Bank, Rainer Brüderle, the Economics minister for the conservative German government, and Jörg Krämer, the chief economist at Commerzbank in Frankfurt. It would have been useful to include the views of someone who believes that German workers should see pay increases.

Real wages in Germany have barely risen over the course of the last decade, even as productivity has grown by close to 2 percent a year. This has led to a shift from wages to profits. It has also meant that German labor costs have fallen relative to labor costs of the countries like Greece, Portugal, and Spain. The only way that trade between Germany and these countries can become more balanced (as long as they remain in the euro) is by having some combination of higher labor costs in Germany and lower labor costs in the peripheral countries. For this reason, higher wages for German workers would not just be beneficial to these workers, it would also be an important part of the re-balancing needed within the euro zone. It is remarkable that this obvious point is never mentioned in this article.

It is also worth noting that this article uses misleading unemployment data. It gives readers the official German unemployment rate of 7.1 percent. This measure counts part-time workers as unemployed. The OECD measure, which uses a similar methodology to the United States, shows that Germany has an unemployment rate of 6.3 percent. There is no excuse for not using the OECD measure since it is readily available and provides readers with a more accurate assessment of Germany's labor market situation.

Comments (3)Add Comment
Getting What You Wish For: The Wish for Failure by Rush Limbaugh
written by izzatzo, April 30, 2011 11:11
The NYT reports that the low unemployment rate in Germany might allow workers to get higher wages, which could put upward pressure on the inflation rate.

Also in the news were wild parties held by Rush Limbaugh and fans celebrating the failure of Obama to reduce unemployment and cause inflation.

When asked why they still repeatedly claim hyperinflation is just around the corner anyway despite massive unemployment, they explained that was just a ruse to distract attention from real cause, since no believes anymore that Obama was born in Kenya.
Newspaper Circulation Stronger in Europe
written by Union Member, April 30, 2011 1:15

"Some people say," "according to anonymous sources," that newspaper circulation across Europe isn't collapsing at quite the catasrophic rate as the NYT. Perhaps the NYT should move to London (where they have 13 dailies)
Model addition
written by Rajesh, April 30, 2011 5:27
The German economic model is addicted to falling unit labor costs. This was not a problem during the early post-war years because strong productivity growth meant that wages could rise while still providing falling unit labor costs.

But, more recently, productivity gains has slowed and the political system has turned to browbeating the workers into lower wage growth in order to keep the economic model intact.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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