Fazit - das Wirtschaftsblog

The discussion about unemployment in the US is quite similar to the one we had in Germany some years ago. Perhaps the German experience can be helpful. But it is not only about Kurzarbeit. By Patrick Bernau

The discussion about unemployment in the US is quite similar to the one we had in Germany some years ago. Perhaps the German experience can be helpful. But it is not only about Kurzarbeit.

By Patrick Bernau

“Fazit” is the economics and finance blog of the German national newspaper Frankfurter Allgemeine Zeitung. Occasionally, we publish blog posts in English. You can find our English posts at https://www.fazitblog.de/english. An RSS feed is available at www.fazitblog.de/english/rss. And please follow our English Twitter account @Fazit_Blog.

Whenever I hear about the unemployment discussion in the United States, the discussion that we had in Germany some years ago comes to my mind. Not long ago, BusinessWeek’s cover read “Why Americans Won’t Do Dirty Jobs”. We had this discussion in Germany, too: about Germans who were unwilling to do dirty jobs. Even when I visited the United States some weeks ago, dinner topics were quite similar to the dinner topics that many Germans had in the time of our high unemployment: illegal immigrants and illegal work. But the similarities go deeper than just dinner topics. After the financial crisis, the Beveridge Curve in the US has shifted to the right, that is: the ratio of job vacancies to unemployment has become less favorable in the US – just as it did in Germany ten years ago. The similarities don’t stop here. Germany being a member of the Eurozone, we do not have our own currency anymore. The United States also find themselves in an (involuntary) monetary union: with China.

So perhaps some experience can be transfered after all – so that the German labor miracle might work its magic also in the US. But don’t judge too fast: Germany’s labor miracle is not only about Kurzarbeit, as many people seem to think. Fortunately, there is a new journal issue published by the German labor unions’ think tank WSI, in which they evaluate the changes in the German labor market from different perspectives. (There are English abstracts in a PDF file).

One o f the most enlightening articles is written by Ulrich Walwei, a researcher with the German administration’s Institute for Employment Research. For him, Kurzarbeit and other crisis measures are only a part of bringing Germans back to work. First, he points to German labor market reforms: unemployment benefits were restricted, and some regulation of the labor market was eased to allow more temporary work and to make layoffs easier. These reforms were enacted between 2002 and 2005. “The develompent of the unemployment ratio since 2005 points to a decline of structural unemployment”, says Walwei. Furthermore: “The labor market reforms increased the number of jobs on the labor market, applicants’ readiness to make concessions and the search activities of unemployed people.” Furthermore, these labor market reforms helped to keep wages down even in the boom of 2005 to 2007, when unemployment decreased tremendously.

Critics say: By pursuing these reforms, Germany has increased the imbalances within the Eurozone (such as Sergio de Nardis on Vox and Eckhard Hein in the WSI journal). This happened because Germany increased its exports and the trade surplus. But in the US, wouldn’t this be a good thing: increasing exports? Thereby, the US would decrease its trade deficit and global imbalances?

Of course, some people are always worried about deflation. I think there is no reason for this worry, given a headline inflation of 3.5 percent. Germany didn’t fall into deflation either, and its inflation was lower. Agreed, there was a boom at that time. But Germany’s inflation at the time of these reforms was even lower than it seems, because the German CPI tends to overestimate inflation compared to the US CPI.

I know: Even after the German reforms, labor market regulation in Germany is still stricter than in the US. Even the German policy, which is soft compared to the US, put a strain on unemployed people and increased inequality. If the US starts to put a strain on unemployed people, their life will be really hard and inequality will rise even further. But the German way is worth a second thought. Because it seems to bring people back to work.

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