Friday, July 12, 2013


The Marx and Engels Monument, Berlin 2011
The Britisch magazine The Economist of half June had a Special Germany Report*. Very interesting stuff to read even if you take in account that The Economist is one of the leading promotors of neo-liberal thinking. If you as a trade unionist want to know, what your opponents think it is therefore perhaps especially wise to read the Economist. One of the interesting parts of The Special Report is the one called “the working parts”. It is about those characteristics that explain why Germany is not doing so bad during this European crisis. Another reason to read The Special Report.

One very interesting question especially for trade unionists, is why Germany has such a favourable employment record? “A decade ago Germany had one of the worst jobless rates in the rich world. Today its employment rate of 5,4% (using OECD figures) is one of the lowest in Europe. Youh unemployment, below 8%, is half that in America and a third of the European average. It is also the lowest Germany has een for 20 years.”

According to The Economist's Special Report this is not the result of booming growth. “Over the last decade Germany's economy has on average grown more slowly than American's and Britain's and barely faster than that of the euro zone as a whole. But Germany managed to avoid a surge of lay-offs after the financial crisis and has done far better than others at getting the young and the hard-to-employ into work.”

The Economist wonders how Germany did manage that? “Most explanations heap praise on the Mittelstand model and the system of vocational training. Firms take on apprentices, mixing practical training with classroom tuition. The German Government also points out that the country “did its homework”, introducing tough labour reforms from 2003 (known as 'Agenda 2010') that freed up the labour market. And the system of Mitbestimmung (which gives trade unions seats on company boards) encouraged wage restraint.”

But for the Economist this explanation is not sufficient: “a cheap currency, some dumb luck ( this sounds irrational especially for the neo-liberal Economist) and a fair amount of fiscal pragmatism also played a part.(....) Shocked by high joblessness and the hollowing out of German industry, the Social Democratic Government under Gerard Schröder introduced a set of sweeping tax, regulatory and labour reforms in 2003. The most important part of this package were the so-called Hartz reforms ( after Peter Hartz, who headed the commission that drew them up), which brought fundamental changes to the low end of the German job market. They eliminated payroll taxes on earnings of less than € 400 a month (recently raised to € 450 ), thus encouraging the creation of part-time 'mini-jobs'. “

The Economist finds that these 'mini-jobs' brought back into work the long-term jobless and gave employers an incentive to create low-skilled and temporary jobs and the jobless a reason to take them. “The also made Germany more Anglo-Saxon. Some 20% of Germans now work in “low-wage” jobs, about the same share as in Britain, not much lower than in America and almost twice as much as in France. Germany's employment boom had less to do with the Mittelstand than with this overhaul at the bottom, which pulled a lot of low-skilled people into work – though it also exerted a downward pull on overall productivity.”

The reforms had also what the Economist calls “big knock-on effects.”: “In conjunction with a move east by many German firms, they persuaded Germany's unions to accept years of tight wage restraint. Between 2001 and 2010 German wages rose by an average of just 1,1% a year in nominal terms, leaving them flat in real terms. Unit labour costs fell sharply relative to those in other countries.”

* The Economist, The Reluctant Hegemony, Special Report Germany, June 15th – 21st 2013, page 12.

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