Germany Has Outperformed the U.S. Because of Work Sharing

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Thursday, 25 October 2012 04:04

Nicholas Kristoff uses his column to take a shot at Mitt Romney's economic policies. While the basic point, that austerity will lead to slower growth and higher unemployment, is correct, placing Germany as a basket case alongside the U.K. is not. While the U.K. has aggressively cut its budget deficit, Germany has not been as ambitious in this respect. (Its deficit had not been as large.)

Germany is primarily feeling the effects of budget cuts in the other euro zone countries, which are largely coming at its own insistence. In this case, Germany is in the same sort of situation as Ohio would be if Pennsylvania, Michigan and Ohio's economy all went into recession. The effect has been to sharply slow Germany's growth, although since the start of the recession, Germany's growth has been roughly equal to that of the United States (somewhat higher on a per capita basis). By contrast, the U.K. has seen sharply lower growth, its economy is still smaller than it was before the downturn began.

In spite of having comparable growth, the unemployment rate in Germany is more than 2 full percentage points below its pre-recession level. By contrast, the unemployment rate in the United States is 3.3 percentage points above its pre-recession level. The difference is that Germany encourages employers to reduce workers' hours rather than lay them off. The result is that many workers are putting in fewer hours, but still have jobs in Germany. The government makes up for most of the lost pay with money that would otherwise have gone to unemployment benefits.

While close to half of the states have work sharing programs as part of their unemployment insurance program, the take-up rate is very low. The Obama administration has attempted to increase take-up by having the federal government pick up the cost for the next two years. (This measure was attached to the bill that extended the payroll tax cut.) However, because most state budgets are so flush, there has been little interest in getting this money from the federal government.

 

[Addendum: The comment about flush state budgets is a joke. I can't imagine why cash strapped states wouldn't look to get free money from the Feds. I suspect inertia, which is by far the most important force in politics and policy.]