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Home Publications Blogs Beat the Press Work Sharing: The Hidden Secret of Germany's Economic Success

Work Sharing: The Hidden Secret of Germany's Economic Success

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Tuesday, 25 September 2012 05:03

The NYT had an article that reported on Germany's relative economic success and attributed it to the labor market reforms that reduced benefits for unemployed workers and took other steps to weaken workers' bargaining power. While these reforms undoubtedly had the effect of reducing Germany's labor costs and thereby allowing it to accumulate a large trade surplus in the euro zone (which meant that countries like Greece, Spain, and Ireland would have large trade deficits), this is only part of the story of Germany's success in lowering its unemployment rate.

The fact that Germany has persuaded employers to reduce work hours rather than lay off workers has been at least as important in bringing down Germany's unemployment rate. Germany's growth rate since the downturn began has been almost identical to the growth rate in the United States. While the unemployment rate in the United States has risen by 3.6 percentage points over this period, from 4.5 percent to 8.1 percent, the unemployment rate in Germany has fallen by more than 2.0 percentage points from the 7.6 percent to 5.5 percent. It would have been worth noting the policy of promoting work sharing in this discussion.

germany-us-since-downturn-09-2012Source: OECD.

The NYT article also wrongly refers to the official Germany unemployment rate of 7.0 percent instead of the OECD harmonized rate. The official German rate counts people who are working part-time but desire full-time employment as being unemployed. It therefore is not directly comparable to the U.S. unemployment rate. The OECD harmonized unemployment rate uses the same methodology as the U.S. Labor Department.

Comments (9)Add Comment
Not Quite
written by fuzzy, September 25, 2012 9:52
Your comment about the German unemployment figures is not quite correct. While it is true that those "who are working part time, but desire full-time employment are counted as being unemployed", this is only the case if these people are officially resisted with German "Arbeitsamt" (Employment Office). Those not registered are not counted. If the Employment office recommends retraining you will be removed from the statistics for the duration of your retraining.

For most people the Employment office simply dispenses unemployment checks. This last for a maximum of 52 weeks. Since the Employment office is notoriously ineffective when it comes to actually placing people in positions, there is little incentive for anyone to remain registered once their unemployment benefits run out. In particular, if you have a part time job, but are looking for a full time position, the German Employment office is the last place to look for help.

For these reasons, I don't think the over counting is a serious as you seem to claim. In fact, polls show the problem of underemployment in dead-end positions is at least as great in Germany as in the US.
Audi's Miracle
written by John, September 25, 2012 11:12
Indeed, the real winners of the German economic downturn has been the Audi's, BMWs, and Mercedes of the German industrial policy. The situation with the German worker on the other hand is becoming more or less like their American counterparts, build products they cannot afford to purchase themselves.
population growth?
written by bill, September 25, 2012 11:27
I think that German population has barely grown while US population probably grew 4%-5% over that same period, so the difference in per capita performance is much bigger, in Germany's favor.
Germany: A False Model
written by AlanInAZ, September 25, 2012 11:44
Another view of the German prosperity with a somewhat longer time horizon. The key factor is stagnant wages for a decade.

http://blogs.lclark.edu/hart-landsberg/2012/02/15/germany-a-false-model/

One thing not mentioned but may be important is the integration of East Germany and the addition of a significant number of low wage workers into the labor market. Just a guess.
...
written by freebird, September 25, 2012 12:49
I can imagine how work sharing can do wonders when applied at the high end of the wage scale, but I get the impression it's more prevalent at the other end. In which case perhaps it feels more like 'work rationing'.
...
written by urban legend, September 25, 2012 4:56
To fuzzy --

Regardless of whether the 7.0% standard German reporting figure captures unemployment correctly or not, the Times report still does not report the only accurate comparative figure determined according to OECD criteria. That is the only way you can make a comparison -- and we look very, very bad compared to stronger safety-net countries by making workers bear all of the consequences of a society wide downturn -- which consequences, by the way, were caused entirely by an elite most of whom have suffered none of the consequences. Should we turn the discussion to "moral hazard"?

You would think the NYT would get this by now. Are they determined to be economic incompetents?
germany & the united states
written by mel in oregon, September 25, 2012 5:47
germans have a lot more vacation time than we do. they also have more benefits. probably the result of being so heavily unionized at about 56% as opposed to our 9%. they live longer by about 3 years than we do & have a lot better medical care. another reason they are happier than we are is they drive smaller cars, whereas a baby boomer here that has his grandchildren living half a continent away still has to have a 9 passenger suv. yeah the germans lost ww2 as did the japanese, but both countries laugh when they think of those stupid americans who are their own worst enemy.
Not Quite
written by fuzzy, September 26, 2012 2:46
to urban legend

The question is where does the OECD get its numbers? The OECD is not doing its own polling, rather they get the numbers from the German government. Then the OECD makes the adjustments they think are needed to get a harmonized statistic.

My point is that the numbers from the German government are not very trustworthy because they are based upon a flawed methodology. Counting only those who register with a Government office that has fallen into disrepute is not a good way to get accurate employment data. Whatever adjustments the OECD uses afterwards doesn't help because the base numbers are wrong.

To get an accurate comparison of the employment situation in each country requires the use of a sound, consistent methodology independent of government influence when the counting is done. We don't have that at the moment, so I fail to see the point of continuing to claim that one flawed statistic is better than another.
I usually think Dean is great - but this is misleading
written by reason, September 26, 2012 3:59
The issue is the rate of growth of the workforce is MUCH different between Germany and the US. Germany is now entering a phase where the number of school leavers is falling and the number of retirees rising sharply.

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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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