ESRI Research Seminar: “What Explains the German Labor Market Miracle in the Great Recession?”

Speaker: Michael Burda (Humboldt University of Berlin)
Venue: The ESRI, Whitaker Square, Sir John Rogerson’s Quay, Dublin 2
Date: 25/04/2013, 4pm
Abstract available here
All welcome, no booking required.

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comments

31 thoughts on “ESRI Research Seminar: “What Explains the German Labor Market Miracle in the Great Recession?””

  1. Question I wondering about was to what degree are German exports resistant to a higher Euro. IIRC there was talk mid 30s what appropriate for Germany. So what would be overvalued for Germany?

    Are they in a win win with the currency. It goes up and maybe a somewhat inelastic position for their exports means they earn more but if t goes down then that only helps the big exporter Germany.

  2. I want currency wars!

    I want £1 = €1.50+

    Let German export prices get cheaper and cheaper.

    Please give it to me. I’m billing £’s at the moment and sending the money home! Mrs PR Guy is constantly telling me to send money for her new house extension project and she’s employing a local builder in Ireland which must be of great benefit to a depressed building sector too – she must be supporting it on here own given the bills I’ve seen lately. Sadly, it leaves me penniless over here.

    There must be loads of people (I meet a lot of them at Dublin airport every Monday morning/Friday evening that’s for sure) from Ireland working outside the EZ and sending the dosh home at the moment. That must be a good thing for the Irish economy right?

  3. The so called German economic miracle has been repeated many times since the mid 1950s’. There are dozens of factors contributing to it.

    1) In the present round the weakness on the periphery kept the Euro from rising against the $US and the Jap Yen.

    2) Keeping people on the manufacturing payrolls by subsidy and short time schemes.

    3) The 13th month bonus , no profit, no bonus. In many companies this applies to every employee.

    4) The slow flight of capital to Frankfurt from the weaker sisters. This has reduced manufacturers cost of funds. As a result German companies are offering low cost financing of products and services around the world.

    5) Low wage subsidies for new entrants to the labour market.

    6) Apprenticeship schemes, some state assisted.

    7) Cheap public transit.

    8) Social supports for the poorly paid. For example Germans are rarely better off unemployed than employed.

    There are dozens of items contributing, including public attitudes that look kindly on honest labour and frown on dawdlers.

    We should keep in mind that the system is not shock proof and a combination of continued weakness on the periphery, a weak Jap Yen and a strong export drive by China could burst the miracle.

  4. @Mickey
    Good point about system not being shock proof. The crisis has a tendency to destroy all working assumptions after a certain point. Trichet’s insistence that the Irish bailout was necessary to avert contagion in the core looks quite fanciful now. There is no credible insurance for anything financial, innit. It is fingers crossed territory.

  5. @ Mickey Hickey

    Interesting that you omitted the most important factor: producing brands that both consumers and business are eager to buy.

    @ All

    In 2012, 62.5% of all German exports went to non-euro countries. In 2000 this share was just under 55%. Since then, China has rapidly gained in importance. China’s share in German exports increased from 3.1% in 2000 to 6.1% in 2011 and 2012.

    The US is the second biggest trading partner and in recent years car sales from Germany have grown strongly. China is now the second most important customer market for the German car industry, having overtaken third-ranked UK in 2012.

    France has more big consumer products companies than Germany and the UK From cars to capital goods, Germany still has a lot of potential in emerging markets.

    In China, with urbanisation and the need to tackle environmental problems,
    there is still need for lots of investment spending.

  6. @ MH-ff: “In China, with urbanisation and the need to tackle environmental problems, there is still need for lots of investment spending.”

    In order to ‘tackle’ environmental problems they will have to spend their own money on themselves. Is that politically possible?

    @MH: “The so called German economic miracle has been repeated many times since the mid 1950s’.!

    They got Yanked up by their bootstraps! Germany – lest folk have little memory of this, was a massive industrialized state – and still is. In European terms it is an economic outlier. The UK and France were potential rivals, but their financial and commercial models were inferior (in the longish run).

    If you want to compare (or perhaps contrast) – think New York or New Jersey versus Alabama or Arkansas. These states are part of a fully integrated Federal system. The EU is not. Perhaps a little review of the European and US economic history of the mid-1960s through the mid-1980s might prove informative. History rhymes!

  7. A BBC report that may help to liven up the seminar (Ht Eurointelligence).

    http://www.bbc.co.uk/news/world-europe-22080862

    That there is no legal obligation on Germany to change approach may be noted. Countries in the EU are required only to “coordinate” – whatever that means – their social policies. This was confirmed, indeed copperfastened, in the Lisbon Treaty, years after the introduction of the euro (but before it tanked).

  8. This should be interesting. I would be interested to hear how a German relates German economic policy to neo-liberalist economic policy.

    I would also be interested to hear about the wages, conditions and bargaining power of the average German worker. Is one of the sources of political resistance to transfers the fact that German workers have experienced wage deflation and decreased bargaining power?

  9. BTW – Ashoka Mody’s blunt comments on Morning Ireland and the recent proposals for official sector involvement (“OSI”) by extending the maturity of official loans to Ireland et al may merit a separate thread. Very good interview on Morning Ireland with Mody being allowed to say his piece. As for German consent, one would suspect the lengthening maturities on debt burden is the kind of assistance that Germans might feel well disposed towards in light of their various and diverse 20th century experiences.

  10. @ zhou

    Germany always subscribed to a “social market economy” not anglo liberalism. You know, with union rights, and a solid social system, universal health care, since 128 years …. : –

    The “average worker” would be a pretty artificial thing.

    The tariff contracts of the flagship metal worker union (IG Metall, 2.5 mio members, and rising!) are done now at the state or lower level. They look what they can extract. And once they got used to the more local level, they also had no difficult to charge about 20% more in a certain county in the west than anywhere else (link doesnt exist anymore, the usual).

    I see any kind of transfer as dead as Stalin, given the wealth distribution
    http://www.ecb.int/pub/pdf/other/ecbsp2en.pdf

    irish 5-year rate is at 2.8%, German coupon 3.0% with about the same average maturity.

    Given that Germany is just 27 % of the ESM, and countries like Italy and Spain have to pay higher rates than Ireland, I would assume that they ask for their rates to be the floor for any new credits.

  11. @ seafóid

    High levels of lead in Chinese and Taiwanese rice is believed to be linked with industrial pollution.

    Haze that sometimes appears over KL and Singapore is not related to ‘modernisation’ but illegal clearance of the rain forests in Sumarta. During the dry season, the peatlands can smoulder for weeks.

    @ zhou_enlai

    Very good interview on Morning Ireland with Mody being allowed to say his piece.

    I guess the opportunity was missed to ask him to apologise for his failures during his period as the Ireland mission chief: either because of incompetence or bending to the demands of his Irish hosts?

    I raise that as a dissenter during his period of responsibility for Ireland.

    It’s easy to take a strong stand as a superannuated pundit.

    People like Peter Doyle who resigned from the IMF in 2012, are rare in that comfortable sphere of officialdom.

    http://cnnibusiness.files.wordpress.com/2012/07/doyle.pdf

  12. quote from the interview this morning:

    Jennings: “So, if imposing austerity on Ireland was wrong, or a mistake; if not allowing any burning of bondholders, whether official, sovereign or private was a mistake; you were centrally involved in that program. I know Ajai Chopra was very much the public face of the IMF mission to Ireland. But you were centrally involved in constructing this bailout. How much responsibility do you take for those errors.”

    Mody: “Yes, so, obviously, I have to take the responsibility in…but I’m in very good company in taking responsibility in this. There were many parties involved. And my role really was to bring such matters to the attention of people who finally made these decisions.”

    Mody is not arguing against austerity, rather he is arguing against “complete reliance” on austerity. He advocates forcible PSI rather than voluntary OSI. I can’t see a difference from Ireland’s point of view. Maybe his point is the timing: an early shot of bondholder burning might have helped end recession faster than reduced cost bailout terms years later.

  13. @OS: Thanks for that extract. The guy is a sanctimonious fraud.

    “It wasn’t me Guv!” 😎

    “… but I’m in very good company in taking responsibility in this. There were many parties involved. And my role really was to bring such matters to the attention of people who finally made these decisions.”

    Jesus wept. Good company! Many parties! Bring such matters to the attention of …! What was he, an office gofer or what? He just sat ‘idly by’? Its pathetic.

    What did Upton Sinclair have say about folk and the origin of their paychecks? Quite!

    “Never underestimate the destructive power of bad ideas”
    [Paul Krugman: 12.10.09. NYT]

  14. @Michael Hennigan
    When are German brands not German brands. Germany has been selling its best brands Hoechst for example is now owned by American Celanese, Braun by an American washing powder company.

    I have a close relative in automotive marketing in North America, he drives an MB350 because of an ongoing business relationship he has with that company. Perception of quality and relative cost are the main drivers along with a well managed marketing program. Hyundai has been making great strides based on improving quality and relatively low prices coupled with an aggressive marketing campaign. Suddenly nothing down and 8 (yes eight) years to pay came on like a Tsunami. First from Chrysler then followed by all the others with the added wrinkle of payment every two weeks, headline payments $99, nothing down, eight years to pay. The holy trinity of German Auto manufacturing MB, BMW, VW (includes Audi) fueled by low cost funding flowing into Germany from the EZ periphery are now competing on price and financing, quite successfully. VW is investing heavily in North America and China with MB and BMW also investing abroad but to a lesser extent. The North American market is far more complex than what I have depicted with Japan and its devaluation campaign being the new elephant on the scene. The point I want to make is that Germany is benefiting from a confluence of events that has given it a temporary (tactical) advantage in a war that will be won by strategists in Asia.

    When I talk to Italians and Frenchmen about the German economic miracle they point to America instituting the Marshall Plan to reinforce the Iron Curtain in Germany and Austria to keep the Communists at bay. Italians in particular bristle at any suggestion that they did not become as prosperous as the Germans since 1945. In spite of or because of their unstable governments they maintain they have made more progress than the Germans and can produce the figures to prove it. I have to admit that at the family and family business level they are right.

    France has cycled up and down relative to Germany and at the moment are slightly down, they claim this is temporary and they are probably right.
    The French do not bristle which means they are quite confident about their performance. It reminds me of Newfoundlanders who say, stand here for four hours and you will experience all four seasons.

    Europe is a work in progress interspersed by periods of stability such as the Roman Empire, Austro-Hungarian Empire, British Empire, French Empires, Swedish Empires, Polish-Lithuanian Empire, Spanish, Greek and Portuguese Empires . Alas no Irish empire. I forgot the Holy Roman Empire which the Germans see as being their empire.

    The EU is but one other iteration in a long, long journey with the EZ now appearing to be a minor hiccup within a bigger movement.

  15. @mickey
    Where did scottish gaidhlig come from? They had bardic culture as well. Ireland had empire before it became fashionable.

  16. Zhou

    I was thinking about it a little further.

    Where is the money? With the rich in the south.

    Who has the most to lose, if their country goes insolvent? The rich in the south.

    Who produces much of the good stuff, but has very little wealth of its own? The workers in Germany.

    Who was cut in the last 15 years the most? The workers in Germany.

    And it irked me somewhat, that some folks http://www.welt.de/wall-street-journal/article115208552/Oekonom-fordert-fuer-Euro-Rettung-Lohnverzicht.html already demand more wage cuts for helping out the rich owners in other countries.

    The 3 parties social democrats, the Green, and of course the Communists in Germany are demanding taxes on all property in Germany to pay down the national debt deemed too high.

    A demand, which I find here a little bit like not really necessary, so far.

    Until 2 weeks ago, the 3 parties were projected to have a majority in the summer 2013 German elections, and since an increasing number of folks in the CDU / FDP coalition are fed up, at least the votes of the social democrats are needed for approving ESM in the parliament.

    After the wealth report, I think it as likely that similar property taxes will be made condition, to show being earnest, and in most countries just a little fee would be sufficient to cut the national debt back to the target 60%, much faster than the stability pact 20 year rule for excess debt requires.

    Germany did a 50% http://de.wikipedia.org/wiki/Lastenausgleichsgesetz , following the Finland example !!

    Even those conservative folks are talking openly about wealth taxation:
    http://marginalrevolution.com/marginalrevolution/2013/04/sentences-about-household-wealth-cyprus-fact-of-the-day.html

    Now, would Berlusconi, Papandreou, and other billionaires eat one steak less, or drive a FIAT 500, if they have to take some very modest haircut?

    Or even more, being happy that it is not their head cut (figuratively, of course : – )

  17. The impact of the French Revolution? “Too early to say.”

    Thus did say Zhou Enlai, allegedly : )

    I was thinking about it a little further.

    Where is the money? With the rich in the south.

    Who has the most to lose, if their country goes insolvent? The rich in the south.

    Who produces much of the good stuff, but has very little wealth of its own? The workers in Germany.

    Who was cut in the last 15 years the most? The workers in Germany.

    And it irked me somewhat, that some folks http://www.welt.de/wall-street-journal/article115208552/Oekonom-fordert-fuer-Euro-Rettung-Lohnverzicht.html already demand more wage cuts for helping out the rich owners in other countries.

    The 3 parties social democrats, the Green, and of course the Communists in Germany are demanding taxes on all property in Germany to pay down the national debt deemed too high.

    A demand, which I find here a little bit like not really necessary, so far.

    Until 2 weeks ago, the 3 parties were projected to have a majority in the summer 2013 German elections, and since an increasing number of folks in the CDU / FDP coalition are fed up, at least the votes of the social democrats are needed for approving ESM in the parliament.

    After the wealth report, I think it as likely that similar property taxes will be made condition, to show being earnest, and in most countries just a little fee would be sufficient to cut the national debt back to the target 60%, much faster than the stability pact 20 year rule for excess debt requires.

  18. and for those, who like historic examples:

    Germany did a 50% Lastenausgleichsgesetz (german wiki only), following the Finland examples, as so often !! : – )

    Even those conservative folks are talking openly about wealth taxation:
    http://marginalrevolution.com/marginalrevolution/2013/04/sentences-about-household-wealth-cyprus-fact-of-the-day.html

    Now, would Berlusconi, Papandreou, and other billionaires eat one steak less, or drive a FIAT 500, if they have to take some very modest haircut?

    Or even more, being happy that there is not more cut ?

  19. The wealth report is far from being a true depiction of wealth distribution.

    The Irish, Italians, Spanish and others own a house to keep costs down in old age. In Germany people rent and old age is taken care of by corporate pensions. In Ireland a house, an acre of arable land and a plot of bog plus the Gov’t old age pension pittance provided ample security in old age. In Germany they have Klein Garten (Small Garden) associations where pensioners rent plots from the municipality. They have similar plots in England, I forget what they were called. When travelling through Germany by train you will see small cultivated plots with small buildings that look like a permanent residence in a South American slum. Those are Klein Garten communities.

    I see increasing signs of poverty in Germany and put it down to the strength of competition coming out of Asia in particular. Couple that with the periphery toppling one country at a time and no end in sight and it would be fair to say that the future for Germany is not as bright as most people on the periphery would like to believe. Most Germans have a good grasp of their reality.

  20. @ seafóid

    It was the US FDA that did tests on rice imports from various countries (in 2012, Vietnam overtook Thailand as the world’s biggest rice exporter).

    This story would be very sensitive in China and will not be officially sanctioned.

    @ Ossian Smyth

    Thanks for that.

    When crises endure and personnel changes, what is impossible can become possible.

  21. @Mickey Hickey

    “They have similar plots in England, I forget what they were called.”

    Allotments.

    They are very popular (and it’s a growing movement in Ireland too).

    Usually rented from the council though some farmers divvy up a field and rent them out too – a big field can pull in tens of thousands per annum when you split it into small plots. Couple of hundred a year per plot usually.

  22. @francis

    The pension funds of ordinary German workers, Irish workers and others were bailed out as well as the wealthy in Southern Europe when the Irish state took on the debts of private banks.

  23. @ zhou_enlai

    What German pension funds? the system is completely PAYGO, there is just a liquidity reserve of about 1 month.

    @ mickey hickey

    You are right, the comparison is unfair.

    But first to the corporate pensions paid out

    http://www.aba-online.de/seiten/betriebsrente/daten_fakten/3_Leistungen_bav/3b_Sozialbudget-LeistungenbAV-1991-2002.shtml

    23.24 b Euro in 2011, but that was, when German 10 year rates were between 3 and 2 %, and now they are at 1.3%.

    We divide the 23 b by 16.8 mio people (CIA WFB) above the age of 65 (which is a little unfair, because disabled etc. retire before that) and arrive at 115 Euro per month and capita. Booah.

    Now let us have a comparison of the net replacement rates:

    http://www.dgaep.gov.pt/upload//RIareas/Pensions_at_a_glance_2011.pdf

    e.g. page 125 on the printed page, Germany 58.4% median earner vs Finland 64.8%, Italy 76%, Spain 84.5%.
    Everybody can of course take his pick of the numerous tables there.

    Now, what would a pension union look like?

    It would have to be means tested, as in the US under Clinton, to account for the very different home ownership rates.

    Rent is typically some 25% of the consumption.

    Heating costs are much lower in the south, another 7%?

    If I get a little cynical, they also don’t need as much alcohol as in Finland and Germany to get through long, cold winters : – )

    Soo, homeownership rates (wiki) of (78 – 42) % times 25% = 9 % + 7 % = 16% additional average need in Germany.

    Germany / Spain = ( 58.4 % – 16%) / 84.5% = just 50%

    My pensioners will love pension union.

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