Global Economics

German Job Gains Could Be Short-Lived


Experts see the recent drop in unemployment as an indication of the past rather than the future, and warn of storm clouds on the horizon

Germany this week announced its lowest number of unemployed in 15 years. The boom in the labor market led to a drop in the number of jobless in June by 528,000 compared to the same time last year, with the total number of unemployed at 3.16 million and a jobless rate of 7.5 percent (down from 8.8 percent one year ago).

The country's Federal Labor Agency says those figures may improve even further in autumn, and German Labor Minister Olaf Scholz of the Social Democrats said Berlin is moving toward its goal of steering Germans toward full employment.

Modern economists today describe full employment as a situation in which fewer than between three and five percent of a country's working-age residents are jobless. According to the German financial daily Handelsblatt, only a dozen labor offices (out of 180 nationwide) are reporting full employment, in the relatively prosperous southern German states of Bavaria and Baden-Württemberg.

Since 2005, over 1.7 million jobs have been created in Germany, with companies adding an average of about 1,000 new positions a day, according to the mass-circulation daily BILD. It's a job motor that has been created by the country's so-called "secret world champions," small and medium-sized companies that have helped defend Germany's title as the world's leading exporter from fast-rising China.

'There's No Reason for Euphoria'

Still, there are clouds on the horizon. As the respected Süddeutsche Zeitung newspaper points out in an editorial: "If politicians now want to reinforce the target of full employment, then they also need to tell the people that Germany is still far from that goal and that the path to it is not without its dangers."

"There's no reason for euphoria," the paper writes. "Expensive oil and the finance crisis could soon impact the labor market. Right now it is primarily banks and insurance companies that are conducting layoffs because of the crisis, but it could soon place downward pressure on other sectors. Expensive oil prices are hitting all parts of the economy, and the easiest way for businesses to cut costs is by cutting staff. ...Experience has shown that there is a months-long delay before economic developments have an impact on the labor market."

The paper added that more than 1 million Germans do not even appear in the official statistics because they are hidden in government-subsidized job-creation programs. They clean parks as participants as part of so-called "one-euro jobs" or they wash dishes in cafeterias. They are often people, the paper writes, who do not qualify for the labor market. "If there were no social safety net, these people would be officially unemployed. A little more government honesty about the labor market would be appropriate."

The conservative daily Die Welt notes that while the government may be able to sit back comfortably and dream about full employment, the "upsurge in the labor market will in no way happen on its own. The need for reforms is tremendous," with so many unemployed people parked in government programs that have taken them off the unemployment rolls. And looking to eastern Germany, where the unemployment rate is twice as high as in the western states, the paper notes that with 1 million jobs unfilled in other parts of the country, jobless residents of the formerly communist east might ought to think about moving to where the jobs are.

The financial daily Handelsblatt is less pessimistic than other papers, writing that is is not yet certain "what kind of impact and how sustained the cost pressures from the recent price explosion will have on firms. There's still a chance that unions, with their wage hike policies, will act with a sense of proportion to the recent inflation rate" when pay raise bargaining starts again later this year.

Meanwhile, the Office for Economic Cooperation and Development (OECD) on Wedneday pointed out weaknesses in Germany's labor market in a report.

At 69 percent, the country's employment rate is slightly higher than the OECD average of 67 percent, but still well below its best performers—countries like Iceland, Switzerland, Denmark and Norway, all of which have employment rates of 75 percent or greater. The OECD points out that a significant chunk of the job creation that has taken place in Germany has been in the part-time job sector. At 22 percent, Germany now has the highest percentage of people working part-time throughout the 20 OECD member states.

The situation is also bleak for the long-term unemployed. The organization reports that 56 percent of all unemployed persons in Germany have been looking for work since 2007, compared to an OECD average of just 30 percent. It noted that countries like France and Spain, where total joblessness is at a similar level as in Germany, the percentage of long-term unemployment is considerably lower.

Germany also suffers from a serious gender gap when it comes to the labor market. Of Germans between the ages of 25 and 54, 15 percent fewer women have jobs and they earn 24 percent less than men in situations where both have a full-time job. Of the OECD countries, such gender pay disparity is greater only in Japan and Korea.

Residents of Germany with immigrant backgrounds (first and second generation, between the ages of 20 and 29) are also 15 percent less likely to have jobs than non-immigrant Germans. The OECD said half of that gap could be attributed to differences in education levels, but that the other half is possibly attributable to discrimination.

Provided by Spiegel Online—Read the latest from Europe's largest newsmagazine

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