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Germany, Labour market reform, unemployment

On the German jobs ‘miracle’

It’s a miracle.

41 million in work, the highest number ever. In January German unemployment fell by 264,000 compared to a year ago, bringing the rate down 6 decimal points to 7.3%. The average unemployment in the region’s most populous nation and largest economy in 2011 was 2.9 million, the lowest level in 20 years.

All while Germany’s neighbours struggle with record jobless. Eurozone unemployment in January rose for the eighth successive month; at 10.4% was the highest rate since the Single currency was created.

Who could argue, then with those that would seek to emulate that success?

Like President Nicolas Sarkozy, who correctly observes deregulatory labour ‘reforms’ have been introduced in Germany in recent years and who is now seeking to push bargaining away from the national to company level in France.

Except dig a little deeper into the figures and a less miraculous picture emerges.

It’s a picture of (often involuntary) part-time work, precarious job contracts and low pay:

Out of the 41 million in employment, 4.5 million are self-employed, in many cases brothers, sisters, sons, daughters, working in the family firm. That leaves around 36.5 million with fixed incomes (waged, or salaried workers). Of the latter, 29 million have more or less regular, protected jobs, with employer and employee-financed social security contributions covering a pension in old age, healthcare and benefits if they become unemployed.

And the remainder?

There’s 7.3 million so-called ‘mini-jobbers’, on officially-backed temporary agency work, who earn up to Euros 400 a month for a maximum 15 hours a week and get minimum social insurance coverage paid for by the employer with their low wages topped up by state subsidies. The majority are women who upon retirement get basic welfare support.

Then there’s 1.2 million, excluded from the unemployed register, who are on training programmes, or paid a pittance for doing socially useful work, or people over the age of 58 not seen as employable. They are working 15 hours or less a week, and are officially deemed to be seeking more hours.

So in total, you have about 8.5 million who are  ‘underemployed’ – who want to work more.

And they want to work more in most cases because they need to earn more.

Wages in real terms (adjusted for cost of living rises) increased by just 4.4% between 2000 and 2010, compared to a 9.7 percent rise in GDP, meaning the lions share of wealth produced in Germany has been swallowed up by capitalists, owners of capital like bosses and shareholders.

I’ll finish with one more set of figures. In 2000, Germans worked 57.7 billion hours. In 2010, the figure was about the same (57.3 billion). This shows that the work’s just been shared out, with workers taking a hit of job security and pay. So is that a model to follow?

I’ll answer that with a shameless lift from a Reuters blog published in November:

‘The reigning narrative of Europe’s financial turmoil is that profligate European states, agglomerated       all too offensively by a swine-referenced acronym, are forcing the continent’s wealthy, prudent northern countries to come to their rescue. Not so, according to two policy experts who spoke this week at a conference on the euro zone crisis at the University of Austin’s Lyndon B. Johnson School of Public Affairs.

 ‘They argue that labor reforms in Germany prevented the wages of manufacturing workers from rising after monetary union had been completed, making the country more competitive at the expense of its southern peers. Joerg Bibow, a professor of economics at Skidmore College, gives his view of events:

Germany’s wage trends have been the most important cause of the euro zone crisis. Those wage trends created an asymmetric shock that destabilized Europe.

‘This hollowing out of the rest of Europe at the expense of Germany’s workers and to the benefit of its prospering corporate sector only lasted so long because of the insatiable, debt-fueled demand of the American consumer, Bibow said.

Some market analysts have argued that the euro itself is a backdoor stimulus for Germany, because monetary union has kept the common currency much lower than the deutschmark would be if Germany’s trade surpluses had been accumulated outside the EMU.

Heiner Flassbeck, a former German government official who is currently a director at the United Nations Conference on Trade and Development, says the economic leg up goes a step further. The way he sees it, monetary union is effectively a commitment by various nations to having the same inflation rate over time.

Yet while inflation in other European nations converged toward the European Central Bank’s 2 percent target, Germany’s dipped even further – in great part because wages were not allowed to rise in line with business productivity.

One country got it absolutely wrong. That country was not Greece, it was Germany. Due to German wage-cutting, Germany adopted a beggar-thy-neighbor export model.

See data and analysis from ILO that sheds more light on the subject

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or @revoltingeurope



  1. Pingback: Europe needs wage cuts…but only for the really wealthy « Revolting Europe - August 23, 2012

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