Any Experts on the German Economy Out There?

The Wall Street Journal has two articles about German. One describes how German wages are stagnating, despite the expansion.

Here is the first articles:

Thomas, Andrea. 2010. “German Workers’ Wages Belie Country’s Rebound.” Wall Street Journal (15 August).http://online.wsj.com/article/SB10001424052748704296704575431240767523752.html?mod=WSJ_World_MIDDLENews

“Germany has surprised the world with a sharp acceleration in its economic recovery, but perhaps the least impressed by this feat are Germans themselves. The German economy expanded a sharp 2.2% in the second quarter from the first — the fastest pace since reunification in 1990. But, despite the export-driven rebound, most German workers aren’t getting any richer.”

“Chancellor Angela Merkel’s government has hailed Germany’s “job miracle” after whittling the jobless rate down to 7.6% of the work force, compared with unemployment levels of about 10% in the U.S. and France. But the bulk of that reduction has come from the emergence of part-time jobs, often at low pay. That helps explain why German domestic demand has remained sluggish even as German exporters boast booming foreign orders. The disparity has drawn accusations from Germany’s neighbors, notably France, that it is exploiting the world recovery without contributing to global demand.”

“Average annual net income per employee has fallen steadily since 2004, reaching 15,815 euros in 2009, down from 16,471 euros in 2004. As part of the so-called Hartz IV labor-market overhaul program to support low-income groups, the government has spent 50 euros billion in welfare subsidies since 2005 for people who earn too little to make a living.”

“Lobby groups for low-paid and unemployed workers worry that an increasing number of jobs have to be subsidized. “Hartz IV has made it possible for companies to get their profit subsidies from the general public, with companies paying starvation wages while those affected need Hartz IV to survive,” said Martin Behrsing, spokesman for the Unemployed Forum Germany.”

“Another measure for low-income workers is looking at people who earn two-thirds or less of the average income. By that measure, the number of low-paid workers increased by almost 2.3 million people to 6.55 million between 1998 and 2008, according to a recent study by the Institute for Employment and Qualification at the University Duisburg-Essen.”

“The Organization for Economic Cooperation and Development’s employment outlook report 2010 shows that 21.5% of Germans worked in the low-pay sector in 2008, up from 16% in 1998. In an international comparison, the share of low-paid workers remained unchanged at 24.5% in the U.S. and increased only slightly in the U.K. to 21.2% from 20.8%. The average among OECD countries is 16%.”

“I think we have seen in Germany for quite a while now an expansion of the low-wage sector, since the mid, late 1990s,” said Herwig Immervoll, an economist with the OECD, which is based in Paris. “There is an increase in the inequality in Germany. We see this in other countries too, but maybe not as much as in Germany.”

“Duisburg-Essen University’s employment institute puts it even more starkly: “No other country has experienced a similar increase in the low-income sector over the past years and a differentiating of wages to the downside as Germany has,” it says in its study.”

“The upswing hasn’t reached me. What I am witnessing is exploitation. There is more and more low-paid work. People don’t find work, and if so only as temporary work, which is a great mistake because it’s destroying the wage system,” Mr. Friedrich said. “It might well be that the upswing has reached the big companies and that they are making more money, but it’s the opposite for the ordinary guy,” he said.”

“Such sentiments are weighing on Ms. Merkel’s center-right government, whose popularity has been tumbling in opinion polls that increasingly favor the center-left opposition. One recent poll showed that four out of five Germans say they aren’t personally benefiting from the rebound.”

“Hubertus Heil, deputy parliamentary floor leader of the opposition Social Democrats, is angry about the increasing number of subsidized jobs and said a legally binding minimum wage is urgently needed. “It’s a shame that people who work full time have to put up with this,” he said.”

“At present, Germany has no general minimum-wage level. Minimums do exist for specific sectors, such as for the construction, cleaning, waste and nursing sectors. To match the minimum-wage levels in other European countries, Germany would have to introduce hourly minimum pay of between 5.93 euros and 9.18 euros.”

“The DGB umbrella group of trade unions has called for an hourly minimum of 8.50 euros. But others, such as the Ifo economic research institute, warn that this could result in the loss of 1.22 million jobs, largely among those earning low incomes.”

“Nelli Einstein, a 48-year-old from Berlin, has been selling clothes, bags, jewelry and tools for 1 euros apiece for the past two years. It sometimes takes her as long as a year to sell 10,000 euros of merchandise.”

Here is the second article:

Fuhrmans, Vanessa. 2010. “Germany Suffers a Labor Shortage.” Wall Street Journal (27 August): p. A 12.
http://online.wsj.com/article/SB10001424052748704913704575453652182261156.html?mod=ITP_pageone_3

“The surprising strength of Germany’s economic rebound is exacerbating an already worrying problem for legions of its companie Industrialists and economists long have warned of a looming shortage of skilled German labor, a consequence of the country’s declining birth rate and an exodus in recent year of engineers and other highly trained workers, to around the European Union, the U.S. and elsewhere. But the rapid recovery of Germany’s export-fueled economy in recent months has suddenly brought the problem home for many domestic companies, which fret that the shortage could restrain their ability to respond to the nascent rebound.”

“Though German unemployment still hovers around 7.6%, about 70% of German companies report they are having trouble finding enough master craftsmen, technicians and other skilled labor, according to a survey released this week by the DIHK Association of German Chambers of Industry and Commerce. Companies haven’t been able to fill some 36,000 engineering jobs open across the country, the Association of German engineers reports. ”

“Bitkom, Germany’s largest information-technology industry association, says the same goes for 43,000 IT posts. ”

“And this is happening just barely out of the severe recession of 2009,” said Hans Heinrich Driftmann, DIHK’s president. “As the economy improves and companies need to hire more people, it’s only going to get more severe.”

“For now, Germany’s marquee corporations, such as Siemens AG and BMW AG, have enough skilled job applicants, thanks to aggressive recruiting and generous training programs. But many of the country’s Mittelstand, the thousands of small to mid-size companies that are the backbone of its export-led economy and provider of 70% of German jobs, are struggling to find needed employees as demand picks up.”

“One is DELO Industrie Klebstoffe GmbH, a Bavarian maker of industrial adhesives. With ?30 million ($38 million) in sales and 230 employees, the family-owned firm is looking to hire another 60 highly skilled workers this year as orders from the electronics, auto and other industries take off. But so far, filling the posts has been difficult.”

“We’re troubled most of all by the search for technicians and engineers,” said DELO Executive Director Sabine Herold. Located near Munich, the company says it is tough to compete for skilled job candidates with better-known companies in the area, so Ms. Herold has been trying to forge closer ties to universities and vocational-training institutes, and sponsoring business programs at local high schools.”

“”If we’re going to expand further, we need smart people right away,” Ms. Herold said. “But a lot of school graduates don’t know us.””

“Behind the growing shortage is a combination of demographic trouble spots. Like in many European countries, Germany’s declining birth rate-at 1.38 children born per woman on average in 2009-isn’t enough to keep its population stable. And since 2008, more people have been leaving Germany than immigrating to it. That tendency is particularly strong among those with university or vocational training degrees. Last year, some 27,500 post-secondary-school graduates came to Germany from other European countries, for example, while 32,000 left for elsewhere in the European Union. ”

“Economists estimate the skilled worker shortage is resulting in annual economic loss of between 15 billion euros and 20 billion euros, and with that, more potential jobs. “If there isn’t enough skilled labor, then there can’t be more production,” said Klaus Zimmermann, president of the DIW German Institute for Economic Research. ”

“Major companies are acting to counter the trend longer term. BMW and Siemens, for example, have expanded in recent years programs that train apprentices in specialized technical fields as they pursue post-secondary degrees at universities or technical colleges, thereby compressing the training time before they can fully join the work force.”

“”They don’t have any difficulties getting hired. They’re in great demand,” said Gnther Hohlweg, head of Siemens’ training programs, who adds that 90% remain with Siemens.”

“Others are using older workers. German auto-supplier giant Robert Bosch GmbH maintains a reserve of several hundred semiretired skilled employees between ages 60 and 75 that it taps when it has to ramp up production and can’t find enough qualified labor on short notice.”

“Daimler AG, which manufacturers Mercedes-Benz cars, anticipates that within 10 years half of its workers will be older than 50 years, compared with 25% now. To accommodate them, it has introduced more flexible shift rotations and installed strength-training equipment near plant assembly lines. According to this month’s DIHK survey, 21% of the 1,600 companies polled said they would take steps to draw more older workers.”

“As Germany’s economy has gathered strength in recent months, the skilled-worker shortage has reignited a debate about immigration policies, and created a new source of tension within Germany’s center-right governing coalition.”

“Earlier this month, the country’s economics minister, Rainer Bruderle, proposed introducing cash “welcome” payments to lure more skilled foreign workers to Germany, as well as lowering the minimum income level it requires for skilled workers to be eligible for extended immigrant status. The current annual income level is 66,000 euros, which many economists and companies say is too high.”
“The proposals were quickly rejected by labor leaders, as well as a spokesman for Chancellor Angela Merkel, who said the government just introduced immigration policies in January 2009 aimed at making it easier for foreigners trained in Germany to find work there, and their effect had yet to be felt.”

7 comments so far

  1. Stephan on

    Michael,

    I think there are 2 reasons for wage stagnation in Germany. First and most important and now conveniently ignored by mainstream economists: German unification. The transfers were and are enormous (approx. GDP of Portugal). Who bears these yearly costs? Mostly labor via their social security contributions. Thus a national task which should be financed by the general public through taxes is mostly shouldered unilaterally by labor. For Kohl this was the politically most convenient way, because this financing could happen in stealth-mode instead in the open light of parliamentary debate.

    Second the German public is obsessed with export. Best example: once China took over the title “world export champion” each tabloid came out with a cover story to the tune “now the sky is falling in Germany”. For years German economists indoctrinated the public with their competitiveness mantra, which boils down to wages must not rise in line with productivity growth and inflation. Thus a larger share of national income is distributed to the top-end-of-town (profits). Even the OECD acknowledges this trend of growing inequality in Germany.

    The best diagnosis comes from UNCTAD’s chief economist Heiner Flassbeck (http://www.flassbeck.de/) and Peter Bofinger (http://www.vwl.uni-wuerzburg.de/lehrstuehle/vwl1/team/bofinger/) Google translation needed😉

  2. Jurriaan on

    I am not an expert but I wrote posts on this years ago, it is not at all a new insight by WSJ. I don’t have time to make the argument exact, but Germany now exports a value which is getting pretty close to half of its gross value-added. As regards the value of German exports, about half goes to the EU15 and about two-thirds goes to the EU27. If you add in Japan and the US, then you are already at 70% of the export value. So, actually, Germany exports to the top end of the world market, to the people who have the money to buy stuff. But what is it exactly, that they export? Vehicles, including commercial and industrial vehicles, machinery, chemicals, metal products, electrical equipment, textiles, foodstuffs and paper, contribute about 60% of the export value. They can keep doing that for a good long time, because that world market doesn’t decline so much; you are talking about essential industrial inputs. It is true that in a slump ‘Department I’ goods producers initially take the biggest hit, but, the longterm prospects are good: Germany supplies specialized inputs for industrialization and supplies finance for it. Most of the rest of the export value is represented by services, financial services, travel, etc. Yet, the whole industrial sector employs only about 30% of the labour force. If you unpack the data, you will find that actually the German export sector directly involves only about one-fifth of the employed workforce, and then, indirectly, you have a packet of services which grow around that activity, there’s a considerable foreign trade in capital and currency. The statistical categories are often not helpful anymore, they are bureaucratic ideology, because they do not tell us anything much about the nature of the relationship between business units.
    But basically we are talking about a classic neoliberal workforce here, stratified into permanent employees, semi-permanent employees on annual contracts, casual and temporary workers, unemployed, and slaves and hustlers, where rich workers earn two or three times what poor workers earn. In the first stage of EU neoliberalism, the workers were afraid of losing their jobs, which led to wage moderation policies. It did not prevent the loss of jobs so much. The wife had to work more hours. The second stage was that industries unprofitable in the world market closed down. Then you get retraining policies etc. The third stage is contract flexibilization – the employer can hire and fire at will using various constructions, but the state picks up the tab. The fourth stage is that the state cuts down its responsibility for unemployment and social welfare; if you can work at all and you are unemployed, you’re stuffed because then you’re out of the system altogether and you cannot claim anything much, now or in the future. The fifth stage is a level of labour force stratification where, at the bottom end, there’s a group of people who were filtered out as rubbish and they’ve become disintegrated from society, they are abandoned by the rest of society and they’re only “contained” within certain perimeters or “no go” areas. That is the logic of it. Civilized people don’t step out of line so much, because they know that it takes them five or ten years to get to the position they want and if they fall off the ladder it is hard to get back on. The rate of labour exploitation increases because the employer has all the power; this is not true only at the top end of the labour market and with various specialist labour requirements. In the US, if you are rich it means you are a good human being, a quality person, and if you are poor you are rubbish. Because if you were not rubbish, then you would have the money, you wouldn’t be poor. So people are graded completely according to how much money they have. It does not work quite like that in Germany yet, that’s because the state sector is still very large and the state disburses a large chunk of income. But it is heading that way. Nowadays, if you are not a hustler, then, if you are unemployed in Germany, it is pretty much a financial disaster, except if you had been in the workforce for a long time in a wellpaid job.
    It is true that Germany has a very powerful industrial sector with a high OCC. Nobody denies that. But although Marxist are typically ignorant about this, the analysis of the total capital structure of Germany and the total income disbursements show a very different picture. The ‘industrial might’ is only a relatively small sector in the German economy. There is a large rentier-capital sector and a large state sector. Far more people are involved in ‘trading’ or ‘distributing’ stuff than are involved in actually producing anything. And a lot of income derives simply from the ownership of assets. Marxist analysts have two handicaps. First, they operate with categories from the 19th century, and secondly they try to find analogies for these categories in official statistics. But in reality the categories in official statistics do not even correspond to the real situation anymore, so you’re talking about a double distortion.

  3. Jurriaan Bendien on

    Just a bit on German wages: traditionally, from the late 1960s onward, German average gross wages were relatively high. But tax and social security contributions are high also – they can be 30-40% of gross income. The cost of living (including indirect tax) is comparatively high as well, if for example you value German GDP in ppp US$ terms, it shrinks by about 17%. Furthermore, as the WSJ article indicates, there is now a large disparity of wage rates, and so the “average” does not tell you very much. The “modal” German worker can live reasonably well, but it’s nothing spectacular really. On average, German households can save about 10% of their gross income, but I assume the modal figure is below that. It’s about the same as Japan; the average household savings rate is higher in Spain, Portugal, Italy, Benelux, etc. If you study the wages, income and tax data in more detail, you realize that Marx’s concept of the “value of labour power” is actually welltaken, since it shows that the value of labour-compensation is not simply a matter of what a worker gets paid.

  4. Gerry on

    I have no knowledge or expertise in economics whatsoever. That’s why i come on this site!!

    However I’m struck by something interesting in Jurriaan’s first response.
    “There’s a considerable foreign trade in capital and currency.”
    I find this an interesting point as an Irish person.

    We’re on the opposite side of the equation than Germany here. Our banks borrowed from bigger German banks. Which means German institutions risked the German workers’ savings on a bubble as Irish banks lent to a cosy cartel of developers incentivised by tax cuts to build private hospitals (few got off the ground) Hotels and multi-story car parks – now almost all hotels are unvible. These Irish Banks (most notably Anglo Irish Bank) are now bust so the debt is to be paid by the Irish taxpayer.

    The Irish Government has guarenteed these til the end of this month(sept ’10). While that exists the German banks can claim that their loans are full value but this is just burying their heads in the sand, as far as I can see.

    If the Irish Government removes the gaurentee and forces either a default or haircut then an amount of loss will have to be accepted by the German banks. This is likely to be relatively small if only Ireland and Irish banks do so but what I think terrifies the ECB and the German (and wider Euro) elite generally is the thought of more defaults in the so called PIIGS states.

    German (and French) lending has funded the peripheral economies for a decade or more and this type of default would cause problems for the Euro generally.

    Anyway, sorry if that is off point. I read this in the FT today also perhaps it is of interest.

    http://www.ft.com/cms/s/0/b11d2732-b915-11df-99be-00144feabdc0.html

    He hardly mentions that the bleeding from Austerity has done nothing to stop the bond spreads in Ireland.

    Anyone able to educate me in the possibilities of a Euro wide stimulus or anything else would be greatly appreciated??!

  5. Maricar on

    Most of the rest of the export value is represented by services, financial services, travel, etc

  6. mark hansen on

    it would seem to this non-economist that until recently Germany has been doing better than the u.s.a.
    wages here have been stagnent since 1972.
    of course, they have probably gone down in the u.s. what with the “worst recession since the Great Depression” and all.

  7. Beverage Dispensers : on

    engineering jobs these days are on high demand as the economy recovers from recession,*~


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