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Home Publications Blogs Beat the Press The Myth of the German Boom Persists in Roger Cohen's Columns

The Myth of the German Boom Persists in Roger Cohen's Columns

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Friday, 24 January 2014 07:59

The mythical German economic boom, along with Santa Claus and the Loch Ness Monster, made an appearance in Roger Cohen's NYT column this morning. (Actually, Santa is still recovering from his busy Christmas and Nessie is hiding, but the German boom is there, really.) Cohen tells readers that Germany did the right thing when its Social Democratic government weakened its welfare state. He now is pleased that France's Socialist President Francois Hollande is about to follow suit.

"The German left partially dismantled the welfare state built by the German left. Unemployment fell, the economy boomed. Germany today is Germany and France is France."

Let's see, Germany boomed and France is France. Let's check the score on that one. Here's growth from 2002 to 2013 in the two countries. [I have corrected this to show more recent data, thanks Mark.]

fr-germ-2

Germany shows a hair more growth through the summer of 2013, but is a cumulative difference of 2.4 percentage points of growth over 11 years (0.2 percentage points a year) the difference between a booming economy and France? This is not trivial, but I'm not sure it is exactly the difference between a booming economy and a stagnant one. (The difference is somewhat larger in per capita terms. Germany's population is shrinking slowly while France's is growing. Some folks consider the latter a big positive, although I'm not in that camp. I have nothing against French people, but I don't see how they are doing the world a service by producing more of them.) 

While the difference in growth rates since Germany's weakening of its welfare state may not justify Cohen's celebration of a booming German economy, there is a notable difference in labor market outcomes. In the most recent data Germany has an unemployment rate of 5.2 percent while France has an unemployment rate of 10.8 percent.

This gap cannot be explained by the differences in growth rates in the two countries. Rather it stems from Germany's aggressive use of work sharing and other policies designed to keep workers on the payroll even if it means a reduction in work hours. If Hollande wanted to copy a policy from Germany he might have looked to its success with work sharing. That policy has been far more successful in lowering unemployment than cuts in the welfare state have been in promoting growth.

 

Note: In response to comments, France is red, Germany is blue.

 

Comments (11)Add Comment
...
written by skeptonomist, January 24, 2014 9:19
You could also compare France and Britain, which Krugman did a few days ago:

http://krugman.blogs.nytimes.com/2014/01/21/running-economies-into-the-sand/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body

The "recovery" claimed to be produced by the Conservative Cameron government since 2010 is even more mythical.
FRED has everything.
written by Mark A. Sadowski, January 24, 2014 10:38
"Okay, I did end this in 2011, which is not because I'm trying to cheat, but because Fred for some reason doesn't have French data for the last three years. (It takes a long time to get data across the Atlantic.)"

Not true, FRED has it:

http://research.stlouisfed.org/fred2/graph/?graph_id=156694&category_id=0

FRED has everything.
Work sharing.
written by Ralph Musgrave, January 24, 2014 11:22

Germany’s low unemployment certainly could be attributable to work sharing. Any actual data to back that up, Dean?

However, if Germany’s low unemployment really is down to work sharing, we shouldn’t get the idea that labour supply reduction schemes like work sharing, early retirement, etc are a particularly good cure for unemployment. That’s the old lump of labour fallacy. That is, work sharing / early retirement won’t reduce NAIRU.

I.e. work sharing is suitable where there is some cause of excess unemployment that the relevant country temporarily has no way of curing: Euro periphery countries are an example. But Germany is the most competitive country in Europe. It has no excuse for resorting the second best cures like work sharing. It should simply bump up demand.

It's a Boom All Right -- in Poverty Levels
written by Ellis, January 24, 2014 12:03
In Germany, the employment situation stinks, also. The number of people without full-time contracts grew to almost a quarter of the German population. Millions make tiny amounts of money, sometimes as little as one dollar an hour.

This rotten employment situation, according to the Federal Statistics Office, is what is behind the boom in poverty levels. The percentage of individuals at risk of falling into poverty grew from 15.2 per cent in 2007 to 16.1 per cent in 2011. This increase was particularly acute among those aged between 55 and 64.

Oh, yeah, it's great to be poor in Germany!
C'mon skeptonomist
written by Ellen1910, January 24, 2014 12:41
You, too, can use tags -- [url=http://krugman.blogs.nytimes.com/2014/01/21/running-economies-into-the-sand/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body]for example

Instead of "http://krugman.blogs.nytimes.com/2014/01/21/running-economies-into-the-sand/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body"
Or playing around
written by Ellen1910, January 24, 2014 12:48
and since the prior comment dropped the closing tag maybe this
...
written by skeptonomist, January 24, 2014 1:18
Ellen-
Using html is great but different sites allow different things and most times I have tried it I got a mess. The site should give more information about what can be done. In another 10 years maybe this will be standardized.
Hard to read key of chart
written by Sail2DeepBlue, January 24, 2014 9:33
Thanks Mark A. Sadowski,

Link much appreciated--I was going to complain that I couldn't read the key on the chart to figure out which line was Germany and which France.

If the chart cannot be expanded (or an additional link is not provided to see a larger version) it would be helpful to clarify this to the reader. Nonetheless Dean, the rebuttal is very welcome.

...
written by Cliff, January 24, 2014 11:51
LOL, your rebuttal is that Germany has much higher growth, but if you fudge the numbers and ignore important factors like population then the difference isn't THAT big. Oh, plus you think the massive changes to German labor regulations in the late 90's have nothing to do with their international competitiveness and phenomenal employment situation. It's all Kurtzarbeit! Shows that you know little about what you are blogging.
Please read the post and chart if you want to criticize
written by Dean, January 25, 2014 8:17
Cliff,

before you LOL too much, please note that the numbers show that Germany did not have much higher growth. I noted the difference would be somewhat larger, not smaller if we took into account differences in population growth.

If you think that the Fed has the wrong numbers please tell us why, but a 0.2 pp difference in annual growth rates does not amount to much.
The French having too many children
written by NicAZ, January 27, 2014 12:38
As a French citizen I know where the large families come from which is mostly on the North African side of the family. People were offered the citizenship by Charles de Gaulle, most moved to France from Algeria decades ago. Thanks to a generous French social system who helps paying for the upbringing of each child until that child reaches 18, the real "income" for some start at 3 children, the rest is history!

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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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