Studies of Economic Change

Deviation

At a first glance it seams to be very fortunate that the development of the unemployment rate does not comply with the forecasted figures. In 2005 about 5.0 million people were unemployment which is about 1.0 million below the basic forecast from 1995 where about 6.0 million unemployed were expected. This deviation increased further in the year 2008: About 3.5 million people were unemployed while more than 6.5 million were predicted. Consequently it could be said that the assumptions are false. But it is not true - they are correct indeed:

• Short-term cycles of the economy are not considered. The last years are characterised by an enduring economic boom. The beginning recession from the end of 2008 is a reminder that the cycles have not stopped yet. Since then for example the number of the short-time workers increased in Germany by about 0.7 million within a few month.
• The statistic of the unemployment rate does not include the minor employed people. This figure increased from 4.4 million in 1992 by 2.9 million to about 7.2 million in 2008 according to the "Bundesagentur für Arbeit". This equals an additional unemployment of about 1.0 million people. Furthermore the analysis of the "Deutsches Institut für Wirtschaftsforschung" (DIW) shows that the number of people who are in danger of becoming impoverished increased by about 3.8 million from 1996 to 2006.
• Germany is at the bottom end of the income increase within the European Union. The average annual increase of the real income is about 0.3% within the period from 2000 to 2010. The income of the EU (27) increased by 0.8% and the income of the new members in the East increased by 3.0 to 9.6% (EU-Commission, OECD). Consequently there is no incentive to improve the performance concerning productivity and efficiency.
• The increase of the productivity stagnates. The Deutsche Bundesbank writes in its monthly report of September 2002: "The rate of the labour productivity is influenced amongst others by the real development of the labour costs. If they increase too fast labour is disposed to be substituted by capital and the employment threshold, the level when employment increases, goes up." [translated by the author, see also chapter 1] But the report does not mention that a lack of productivity is connected with a lack of international competitiveness in a global world economy as well.
• Germany is world champion in export with an extraordinary export surplus. Germany lives at the cost of its neighbours. The export surplus increased from 43.6 billion Euro in 1995 to 176.2 billion Euro in 2008. This relates to about 3.0 million people in 2008 and about 1.0 million people whose jobs depend on the export surplus. This equals an additional unemployment of about 2.0 million people.

Consequently the international competitiveness of Germany increased because of cost cuttings concerning wage and social dumping and not because of improving its performance concerning productivity and efficiency. Those who improve their performance have an advantage in the long term because they have an additional option - to get cheaper.