Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Many have pointed to the generally fantastic performance of the German economy, relative to not only other European markets but certainly versus the United States over the past 3-4 years. Of course having a depressed currency helps; an independent mark would be far higher than the continental Euro – but Germany has practiced a far more balanced approached to ‘capitalism’ than is popular in the U.K. or U.S. Government, business, and labor generally have a much more equal stake at the table. The country also had a series of initiatives that were far more protective of labor during the downturn rather than ‘slash and burn’ which is popular in the U.S. That said, it’s not all peaches and cream as this quite interesting Reuters article points out. Even in Germany we are seeing a lot of the trends that have evolved in both the U.S. and Japan – a stark gulf developing between the haves and have nots.
Some excerpts:
- Wage restraint and labor market reforms have pushed the jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive. But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.
- Jobs at temporary work agencies reached a record high in 2011 of 910,000 — triple the number from 2002 when Berlin started deregulating the temp sector. Data from the Organisation for Economic Co-operation and Development shows low-wage employment accounts for 20 percent of full-time jobs in Germany compared to 8.0 percent in Italy and 13.5 percent in Greece.
- Labor office data show the low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the “job miracle” has not prompted Germans to spend much more than they have in the past. Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former communist east German states.
- Data from the European Statistics Office suggests people in work in Germany are slightly less prone to poverty than their peers in the euro zone, but the risk has risen: 7.2 percent of workers were earning so little they were likely to experience poverty in 2010, versus 4.8 percent in 2005. It is still lower than the euro zone average of 8.2 percent. But the number of so-called “working poor” has grown faster in Germany than in the currency bloc as a whole.
- In response, as other European countries rush to deregulate, Germany is re-regulating.
- The contrast between Germany’s record levels of employment and the dire jobs situation elsewhere in Europe is stark. Last year, the number of people in employment in Germany rose above the 41 million mark for the first time. The jobless rate has been falling steadily since 2005 and now stands at just 6.7 percent, compared to 23 percent in Spain and 18 percent in Greece.
- It has been a tough battle since German unemployment peaked after reunification in 1990. Many east German businesses floundered in a free market once the Berlin Wall fell, sending joblessness there soaring over 20 percent. Globalization put Germany’s export-reliant economy under competitive pressure, forcing it to adjust quickly.
- By 2003, Germany was embarking on reforms hailed as the biggest change to the social welfare system since World War Two, even as many of its peers were moving in the opposite direction. While the French Socialists were introducing the 35-hour week and cranking up minimum wages, Germany’s Social Democrats (SPD) were deregulating the labor market and raising pressure on the jobless to find work. Unions and employers agreed to wage restraint in return for job security and growth. Flexible working practices and government-subsidized reduced working hours enabled employers to adjust to the economic cycle without hiring and firing. (the latter a key difference in policy between the U.S. and Germany)
- While wage inequality used to be as low in Germany as in the Nordic countries, it has risen sharply over the past decade. Low wage workers earn less relative to the median in Germany than in all other OECD states except South Korea and the United States.
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