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.