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Home Publications Blogs Beat the Press The German Unemployment Story is Better than the NYT Suggests

The German Unemployment Story is Better than the NYT Suggests

Wednesday, 04 August 2010 04:22

The NYT had an article about Germany's relatively healthy economy, which is now growing at a healthy pace largely as the result of a surge of exports. The article also notes the effectiveness of Germany's work sharing policy which provides tax credits to companies for shortening hours rather than laying off workers. This policy has been even more effective than the article implies.

While the article tells readers that Germany's unemployment rate is 7.6 percent, this is the German government measure. This measure counts people who want full-time work but only have part-time jobs as being unemployed. By contrast, the OECD's methodology, which is similar to the one used by the United States, shows a German unemployment rate of 7.0 percent, roughly the same as before the downturn.

Comments (9)Add Comment
And another thing.
written by Joe K, August 04, 2010 5:32
Just back from some vacation, mostly in Germany, and noticed the latest figures on unemployment. Using the German govt. numbers, overall unemp about 7.6% but over 11% in the former east Germany and mid 5% in the west. Back in 2000 unemployment about 10% (going by memory, 16 to 18% in the east), so yes Germany has been doing a seemingly good job (still a lot to do in the east) for some time.
written by izzatzo, August 04, 2010 6:39
... tax credits to companies for shortening hours rather than laying off workers. This policy has been even more effective than the article implies.

This must be a typo because it's an austerity measure completely foreign to the austerity crowd in the US, just another confirmation of how socialism is bringing down Europe. Any economist knows it's impossible for tax credits that reward less hours per worker to produce more total output.
Fewer workers are more productive
written by Bill Turner, August 04, 2010 7:44
izzatzo said:
Any economist knows it's impossible for tax credits that reward less hours per worker to produce more total output.

Several studies have shown that when workers work fewer hours they are more productive on a per hour basis (I am sure there is a bottom limit to this). So, either economists ignore the territory and trust the map, or they are ignorant of facts.

Depending on the size of the subsidy, it surely could be less expensive for the government to subsidize hour reductions than to pay unemployment.
written by skeptonomist, August 04, 2010 8:32
The main factor influencing worker productivity is capital investment in the latest work-saving machinery. While it makes sense that long hours could reduce worker efficiency, any differences in the degree of automation are likely to be more important. I would want to see if there is a correlation between hours worked and automation or just capital investment before making conclusions about the efficiency of individual workers based on overall numbers. Making a valid conclusion about worker efficiency would probably depend on differences when the degree of automation is held constant and worker hours are varied, a difficult thing to get data for.

Note also that output per worker is not the benchmark for employers, who must consider the expense of fringe benefits. Since Germany has public health care, this is presumably less of a factor there.
Tax credit?
written by Detlef, August 05, 2010 2:56
I´m not sure if "tax credit" is the right term.
Unless I misunderstand the meaning of the word?

A company in trouble (because of the recession) can propose a "short time work" plan to the German federal job agency. If approved the company can then reduce working hours.

An example:
The company reduces working hours from - say - 40 hours to 20 hours a week. They then have only to pay for the 20 hours actually worked.
50& of the last wages.

The job agency then supplements additional money to the employees on "short time work". They get paid out 60 or 67% of their "lost" wage (depending on family status). So in reality they get something like 75-85% of their last net wage.

And the job agency encourages companies to assist their employees using their "free time" for education / job training. In certain cases the job agency even pays the costs.

And as far as I know that money subsidy is a direct transfer of money and not a tax credit.

And about the NYT reporting the German unemplyoment rate without mentioning that it is calculated differently than the US one?
Big sigh!
1-2 years ago - after reading a NYT article with the same problem - I actually wrote an email to the reporter complaining about that.
He wrote back saying that he assumed that NYT readers would know that fact.
I wrote back telling him that the readership of the NYT and IHT (including their websites) is worldwide. And that I doubted that every reader knew about it.
He acknowledged the point and promised to do better. He obviously didn´t mention it to the author of this article.
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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.