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Friday, March 30, 2012

THE GERMAN ECONOMY'S IMPRESSIVE PERFORMANCE RECENTLY, AND PROBLEMS THAT STILL CONFRONT THE COUNTRY

INTRODUCTORY COMMENTS 

What follows is the third part of a lengthy series of analytical comments about the German economy.  The first two parts, please note carefully, have been posted by in a thread at The Economist, and can be found here. Be sure to read The Economist's brief article that started the comments, and then prof bug's two posts ---the initial one at bottom of the online page --- before you proceed to the third installment below. 

Oh, almost forgot.  There's a fourth part, all finished, that the buggy professor will post here tomorrow. 

 PART THREE: REMAINING WEAKNESSES IN THE GERMAN SYSTEM OF EMPLOYMENT

Part two of this series, you might recall from The Economist thread, underscored the successes of the German economy's impressive reforms of its job market since 2005.  In that year --- a boom year for the global economy --  the German rate of unemployment was a staggeringly high 12.5%.  Yes, in a fast-growing worldwide economy.  And yet in 2011, a year of at best sluggish economic growth in most of the world, the German rate had fallen to 5.5%.  That latter figure uses  OECD standardized criteria across its member-countries.  (The USA Department of Labor, please note --- which uses the same standardized criteria --- nonetheless adjusts German and other countries' unemployment data, sometimes up, sometimes down, if it finds even minor discrepancies with USA data collecting and analysis.  For what it's worth, as you'll see later, it adjusted German unemployment upward to a rate of 6.3% for February 2012.  The equivalent rate for the USA was 8.3%---still way behind the German performance.) 

 Dig deeper though, and as the second buggy post in this series  hinted at a couple of times, the German job performance since the start of the Great Recession in late 2007 turns out --- like the USA's - to be less than glittering. 

Specifically:

I. . To the 5.5% official rate --- or 2.8 million jobless Germans still looking for employment ---there are another 7.3 million Germans in "non-standard" or "atypical" jobs to use OECD jargon.

  • These jobs, as noted in part two of this comment-series, come in a variety of ways: one- or two-euro jobs, short-term jobs, and involuntary part-time jobs . . . some of which involve additional welfare benefits, others that don't like internships. (Ralf Jeremias, a German academic specializing in the labor-market changes in his country, estimated that there were 7.3 million Germans in these jobs, most of whom, remember, are not there voluntarily. They have no choice. Either they lose their unemployment subsidies or other government- benefits, or they don't have such benefits but would like to have full-time or better paying part-time jobs. For the Jeremias article, click here: lhttp://onlinelibrary.wiley.com/doi/10.1111/j.1743-4580.2010.00308.x/abstract )

Click the continue button below.

  • Then, too, there are unemployed Germans over 58 years of age who aren't ordinarily included in official German statistics. They haven't retired but get unemployment benefits of a special sort --- called "merit pay with easier conditions" (erleichterten Leistungsbezug) --- but don't even have to fill in a job-application form or register with an official German unemployment office. In the upshot, they drop out of official German unemployment statistics.

  • Enter center-stage now several hundred thousand German higher-education students who --- despite recent reforms of the university system that were fully implemented in 2007--- spend 6 or more years getting their first degree with government subsidized education.

Compare the degree-age with the US and UK. The average German student before 2007 obtained his or her initial diploma at age 28. In Britain, the equivalent age was 23, and in the US 24 or 25 (depending on the kind of higher-education schooling). True, thanks to the 2007 reforms, the German graduation age-rate will no doubt continue to decline, if only because student-subsidies will end (and more and more universities charge tuition fees). Nevertheless, there's still a backlog of a large number of university students to whom the reforms still don't apply.

  • In addition, the employed rolls are calculated by many German specialists to exclude a large number of both young adults and women of all ages who would like to work - as well as formally employed men and women --- who are stuck in mini- or midi-jobs with very little pay and few long-term prospects of a career.

II. THE OUTCOME?

As in the USA, there's a highly qualified, seamy side to the German employment-miracle. It erodes some of the triumphant glitter of the job-market performance there. 

Actual unemployment, which is officially 2.5 million or so in Germany --- and higher still if you want to adjust the country's unemployment rate using American criteria for comparisons (6.3% if it includes involuntary part-time workers vs. 8.3% in the USA or vs. the official German rate of 5.6%) ---has additionally somewhere between 7 and 8 million Germans in non-standardized (atypical) jobs, many of whom might be considered by those holding them as dead-end, low-pay, semi-compelled forms of work. For the US Bureau of Labor adjustments of other countries' unemployment to its own calculations as of January 2012, click here and go to, p. 3, table 1. For specific adjustments to German data, click here.

III. GOOD OR BAD, COMPARED WITH THE USA?

Of course, you could argue that it's better in Germany than in the USA for the unemployed to have even one-Euro ($1.33) jobs, however temporarily, in order to qualify for some additional welfare support, rather than use up what has been 100 weeks of unemployment compensation.  Or praise the mini-jobs that give some job-training for a few weeks or months, even if at the end no permanent jobs (full-time or part-time if desired) are available.

But then you could also argue the opposite: all these various forms of "active" employed in Germany are poor make-shift jobs and job-training that lead essentially nowhere for those who hold them.  Some of them. to repeat, do entail some training, though even that --- at the end of the apprenticeship at One Euro or other very low pay (Germany has no minimum wage) --- may not lead to a better job, or even any job except one created by the government that will enable you to get some welfare benefits.

IV. ONE MORE STARTLING FIGURE TO HELP PUT IN PERSPECTIVE GERMANY'S OFFICIAL UNEMPLOYMENT RATE

Specifically --- a big question mark hanging over German official unemployment statistics --- it turns out that in January 2012 there were 5,768,656 Germans officially receiving unemployment checks.  That number ---click here for the source --- is at least double the officially stated number of unemployed reported by the German government for the month.  So how can nearly 3 million Germans not counted as part of the unemployed be receiving unemployment benefits and yet not figure in the official unemployment rate?

So which system of employment and welfare is better?  The USA's or Germany's, if we're skeptical about the official figures reported for unemployed Germans, but also about the Bureau of Labor's statistics not counting, say, former American workers who have dropped out of the labor force for whatever reason --- maybe out of discouragement, maybe to opt for retirement if they qualify for private pensions or social security or both, or maybe because a spouse or other family member earns enough for the household to get by on.

It seems at best a touchy choice, with no good alternative.  

V. THAT SAID, ONE THING'S FOR SURE, NAMELY:  

Official US unemployment is 8.3% as of February 2012 --- or a total of 12.8 million men and women, a number using the household survey system that also reflects the OECD harmonized guidelines across country-members --- might be too low; and it's hardly anything to be happy with.  Just the opposite.  Yet

whatever else might be said about the BLS's data here --- remember, the BLS raises Germany's OECD-harmonized unemployment rate to 6.3% (compared with the USA rate of 8.3%) ---we can be certain that there aren't 25.6 million Americans receiving unemployment checks right now.  

By contrast, if double the number of Germans officially reported as unemployed are receiving unemployment checks, there seems to be something odd about that official number.  Remember, such benefits either in Germany or the USA are not the same as welfare benefits given to people in poverty or who are physically or mentally unable to hold a job, even a mini- or 1-Euro job in Germany itself.  To receive unemployment checks, a person is supposed to be actively looking for a job through the duration of such support.