Why didn\’t German unemployment rise in the recession?

Because they deliberately pushed down wages before the recession.

So what does this tell us about what we should do now?

Why, of course, we should push down wages so as to cut unemployment.

11 thoughts on “Why didn\’t German unemployment rise in the recession?”

  1. JB no realtion to John B

    German State also paid wages or part wages of employees in some industries to keep them in work.

  2. Time to reduce or abandon the National Minimum Wage along with raising the tax threshold so that those earning the equivelent of the National Minimum Wage don’t get taxed on it.

    I seem to remember reading all of this somewhere…. Wasn’t it on Timmy’s site?

    :O)

  3. As JB says, Kurzarbeit did it. Contentious. It either prevents the efficient redeployment of our scarcest resource (person hours) or sees you through a rocky patch with your labour force intact. To be fair the policy dates from the Wirtschaftswunder period, and helped big manufacturing companies hold on to their workers while, say, an assembly line was shut down for retooling. Because during the Wirtschaftswunder there was a real risk that your entire laid-off labour force would not wait 3 months to get their jobs back but would defect to your competitor down the road. So it’s a typical German tripartite solution (the three parties being government, big business and the unions) that makes everyone happy. It wasn’t really designed for recessions.

  4. Didn’t Germany also kept tight control of their property prices? They didn’t have a monster commercial, or private property bubble to contend with.

  5. Germany does keep tight control of property prices, but mostly by making it astonishingly expensive to move (I just bought here). The transaction tax is a minimum of 3.5%, depending on where you are. Estate agent fees are typically almost 6% (both tax and agent paid by buyer). You can easily be out of pocket for a year’s net income when you buy. So Germans tend not to.

    In the UK, the minimum wage is at an almost appropriate level – i.e. it’s so low that it isn’t measurably affecting employment but also isn’t doing very much for the people it’s intended to benefit. Actually if you made it much higher the problem wouldn’t be so much unemployment as people wondering why they should bother cleaning offshore gas rigs when they can clean supermarkets for the same money. As Tim is fond of saying, Adam Smith explained all this about 225 years ago and you’d have thought people might have cottoned on by now.

  6. It’s worth adding that the asset price booms in the UK and Spain were at least partly fed by excessive German prudence. Everyone knows Germans save, but Germans dont save for a rainy day, Germans save for Armageddon.

    All those savings have to end up somewhere, and like everything else will go for where the highest returns are, (which is not necessarily where they are most productive.) That pumping up property prices is not productive of more property simply tells me that suppliers are incapable of reacting quickly enough to meet increased demand, so the money ends up increasing the cost of existing property rather than encouraging further supply. Of course planning and other bureaucracy also plays a major role in obstructing new construction. And if that adds in enough delay between decision to build and being able to such that you are back at the wrong end of the cycle by the time you come to sell the new property, you might never get anything new built.

    Spain’s property market was a no-brainer, but the UK was in a particularly special position being outside the euro. Firstly, it’s now widely acknowledged that the pound was a bit overvalued. The euro was cheaper to borrow due to lower interest rates, and most importantly, as the exchange rate had been pretty stable for several years a lot of people believed it would never change as dramatically as it did. So the euro got used as a (supposedly) low-risk carry currency to underpin borrowing against property in Britain. Which was only possible because Germans (and others) save too much.

    Which just goes to show that monetary sovereignty argument deployed by euro detractors is a bit of a myth. You are always going to be affected by interest rates and other macroeconomic stuff including consumer psychology in other currencies whether you like it or not (and the smaller and shallower your own money market the more you are going to be affected). The alternative – the only way to have true monetary sovereignty is to both have your own currency and impose capital controls.

  7. Tim,

    Just fine, as long as it’s not your wages.

    JB no relation to John B,

    You wrote,

    “German State also paid wages or part wages of employees in some industries to keep them in work”

    Otherwise known as the Speenhamland system, one of the greatest causes of pauperisation in Britihs history.

  8. Well yes but the real estate near big cities are a real jewel for outside investors. Many, including my brother, are looking to invest in the smaller cities and I’ve been told the prices are way lower on property than the UK. I’m looking for german law firms right now to help us with some paperwork. Heard good things about SG Law and Stefan Gomoll so I might give them a try. But obviously with investors that wish to expand their businesses, there’ll be new jobs that will at least help the unemployment problem a bit.

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