Germany Gripped By Anxiety

Berlin, Germany In January, Germany’s unemployment rate hit its highest mark since World War II. Over five million members of the workforce, or 12.1 percent, were reported jobless. In western Germany, the rate was 9.9 percent, in the formerly Communist-controlled east it was 20.5 percent. Between 2001 and 2003, even unemployment among highly educated people with graduate degrees grew from 180,000 to 253,000 or some 40 percent.

The causes of the problem are complex.

High labor costs
Germany continues to have one of the world’s most generous wage, benefits, and welfare systems. It severely burdens employers. Expensive health care and pension benefits, high standards for working conditions and long vacations discourage employers from adding employees. Labor laws and labor agreements, moreover, tend to make it very difficult to lay off employees.

Due the rapid development of laborsaving technology and stagnant population growth, the demand for labor does not increase while expenses for the growing numbers of retirees increase.

High unemployment compensation
Germany has also one of the world’s most generous systems of unemployment compensation. It severely burdens the state and may discourage compensation recipients from seeking employment. An unemployed person used to receive 60 percent of previous earnings for the first 32 months and 55 percent thereafter. Recently, the government reduced the amounts to roughly $450 per month for 12 months in the west, and $430 plus rent and heating subsidies in the east. Applicants have to complete a 20-page application to reveal their assets and show that they are looking for work.

Moving production abroad
In spite of high unemployment, Germany’s $950 billion exports set another record last year. German companies, however, have been increasingly outsourcing production, or relocating production facilities to countries where wages and benefits are substantially lower. Forty percent of Germany’s exports are being produced in low-wage countries, either in part or wholly. One can now buy a machine “made in Germany” but built in China for a German company and based on German design and specifications. According to newspaper reports, 80 percent of all exported German clothing is being produced in other countries.

Ironically, German companies that do not operate in Germany remain highly competitive and profitable. Highly skilled labor, such as engineers, remain in demand but less skilled and older employees are losing their jobs to cheaper and non-unionized labor in Asia.

Insufficient domestic demand
Germany’s relatively high standard of living and relatively high rate of savings keep domestic demand for goods and services, as well as for labor, too low for the economy to market what it potentially could produce. Hence, exports are indispensable for the country’s economic health.

An average of 60 percent of all machines built in Germany are sold abroad, 90 percent of all textile machinery. In support of export promotion, the federal government spent $220 million in 2004, not including $47 million in aid for trade fairs and $29 million for German chambers of commerce abroad.

Too much angst, too little action
For years, Germany’s political leaders have been urged to cut or deregulate wages, benefits, welfare spending, and unemployment compensation and resist the country’s strong labor unions that want to make as few concessions as possible. Politicians of every ideological bent demand reforms buta greement and action has been slow in coming.

A commentary in Die Welt, one of the leading dailies, describes the mood: “Germany is haunted by anxiety, by the fear of losing one’s job. The sound barrier of five million jobless people was broken this winter. It depresses not only the people affected and frightens all employees in precarious situations.

For some time, apprehension has also been felt among the higher income groups. By now it is clear that something is fundamentally wrong in Germany.”

Wolf D. Fuhrig	Home	03-06-05
Germany Gripped By Anxiety
*Berlin, Germany* In January, Germany’s unemployment rate hit its highest mark since World War II. Over five million members of the workforce, or 12.1 percent, were reported jobless. In western Germany, the rate was 9.9 percent, in the formerly Communist-controlled east it was 20.5 percent. Between 2001 and 2003, even unemployment among highly educated people with graduate degrees grew from 180,000 to 253,000 or some 40 percent. The causes of the problem are complex. High labor costs Germany continues to have one of the world’s most generous wage, benefits, and welfare systems. It severely burdens employers. Expensive health care and pension benefits, high standards for working conditions and long vacations discourage employers from adding employees. Labor laws and labor agreements, moreover, tend to make it very difficult to lay off employees. Due the rapid development of laborsaving technology and stagnant population growth, the demand for labor does not increase while expenses for the growing numbers of retirees increase. High unemployment compensation Germany has also one of the world’s most generous systems of unemployment compensation. It severely burdens the state and may discourage compensation recipients from seeking employment. An unemployed person used to receive 60 percent of previous earnings for the first 32 months and 55 percent thereafter. Recently, the government reduced the amounts to roughly $450 per month for 12 months in the west, and $430 plus rent and heating subsidies in the east. Applicants have to complete a 20-page application to reveal their assets and show that they are looking for work. Moving production abroad In spite of high unemployment, Germany’s $950 billion exports set another record last year. German companies, however, have been increasingly outsourcing production, or relocating production facilities to countries where wages and benefits are substantially lower. Forty percent of Germany’s exports are being produced in low-wage countries, either in part or wholly. One can now buy a machine “made in Germany” but built in China for a German company and based on German design and specifications. According to newspaper reports, 80 percent of all exported German clothing is being produced in other countries. Ironically, German companies that do not operate in Germany remain highly competitive and profitable. Highly skilled labor, such as engineers, remain in demand but less skilled and older employees are losing their jobs to cheaper and non-unionized labor in Asia. Insufficient domestic demand Germany’s relatively high standard of living and relatively high rate of savings keep domestic demand for goods and services, as well as for labor, too low for the economy to market what it potentially could produce. Hence, exports are indispensable for the country’s economic health. An average of 60 percent of all machines built in Germany are sold abroad, 90 percent of all textile machinery. In support of export promotion, the federal government spent $220 million in 2004, not including $47 million in aid for trade fairs and $29 million for German chambers of commerce abroad. Too much angst, too little action For years, Germany’s political leaders have been urged to cut or deregulate wages, benefits, welfare spending, and unemployment compensation and resist the country’s strong labor unions that want to make as few concessions as possible. Politicians of every ideological bent demand reforms buta greement and action has been slow in coming. A commentary in Die Welt, one of the leading dailies, describes the mood: “Germany is haunted by anxiety, by the fear of losing one’s job. The sound barrier of five million jobless people was broken this winter. It depresses not only the people affected and frightens all employees in precarious situations. For some time, apprehension has also been felt among the higher income groups. By now it is clear that something is fundamentally wrong in Germany.”

Wolf D. Fuhrig

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03-06-05

Germany Gripped By Anxiety