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Home Publications Blogs Beat the Press Low Unemployment in Germany: The Story Is Not GDP Growth

Low Unemployment in Germany: The Story Is Not GDP Growth

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Saturday, 11 May 2013 09:57

Floyd Norris has a good piece today comparing trends in unemployment rates across countries in the downturn. He notes that Germany alone has seen a drop in its unemployment rate since the downturn began. While he notes that Germany has pursued work sharing policies that have encouraged employers to keep workers on the job working shorter hours, readers may not appreciate the full importance of this policy.

Growth in Germany and the United States have been virtually identical since the beginning of the downturn. While Germany has a large balance of trade surplus, in contrast to the deficit in the United States, its consumption growth has been weaker.

gdp-germany-us-growth-05-20

Source: International Monetary Fund.

Germany is helped in this story by the fact that it has a slower rate of labor force growth, but clearly the difference in growth rates does not explain the fact Germany's unemployment rate has fallen by 2.5 percentage points while unemployment in the United States has risen by 3.0 percentage points.

Note: correction made --thanks ltr.

Comments (5)Add Comment
...
written by ltr, May 11, 2013 10:34
Dean you left out the critical word "not"

"readers may [not] appreciate the full importance of this policy"
Respectfully
written by Chris Engel, May 11, 2013 11:56
I think David Beckworth has nailed down precisely why Germany is in good shape, while rest of Europe declines:

http://macromarketmusings.blogspot.dk/2013/02/note-to-charles-goodhart-europe-is.html

So Germany has actually done a much better job of targeting NGDP and their M2 has grown nice and healthy.

Paritcularly damning is to see the comparison with rest-of-europhe's NGDP and M2!
More "Aversive Therapy" Please
written by Ellen1910, May 11, 2013 12:02
“We will have to speed up in fighting youth unemployment,” the German finance minister, Wolfgang Schäuble, said at a conference this week, “because otherwise we will lose the support, in a democratic way, in some populations of the European Union.”

Workers whose first encounter with the labor market comes during a period of high unemployment will, throughout their working lives, evidence a fear of demanding increased wages and a Stockholm-syndrome willingness to accept management's claims.

From the elites' perspective the challenge is to extend the period of high unemployment among the youth just short of promoting revolution. Thus far, the EU barons are doing a great job.
The Real Story is Slow German Productivity Growth
written by Mark A. Sadowski, May 11, 2013 5:40
"While he notes that Germany has pursued work sharing policies that have encouraged employers to keep workers on the job working shorter hours, readers may not appreciate the full importance of this policy...Germany is helped in this story by the fact that it has a slower rate of labor force growth,..."

According to the Conference Board, hours worked per employee fell by 1.8% in Germany and by 0.1% in the U.S. between 2007 and 2012. Similarly, labor force growth was not that much different, with the labor force increasing by 0.8% in Germany and 1.2% in the U.S.

By far the most important part of the story is productivity growth. Productivity (GDP per hour worked) increased by 1.1% in Germany and 5.6% in the U.S. Productivity growth explains over two thirds of the difference in trends in unemployment.
The Grass is Greener
written by Ellis, May 12, 2013 10:38
Those who believe that German workers have not been touched by the crisis and that there are not grave threats on the horizon live in a fantasy world. Why do you think there has been such a growth of the extreme right wing and racism in Germany? Really, the economy is rotten everywhere.

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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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