German job market to stagnate in election year

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Created on Thursday, 03 January 2013 00:00

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German job market to stagnate in election year

03 Jan 2013

The German labor market has finally gotten caught in the maelstrom of the European recession. But experts see this as a minor slump, and Angela Merkel's party is even promising a policy of full employment in 2013.

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Every government likes positive employment figures - especially in election years like 2013, when Germany is to elect a new national parliament. Any government that can boast healthy job figures is considered economically competent.

It helps the economy as well, as consumers have more money to spend on goods and services. Tax revenue spikes, and in Germany's semi-socialized health care system, health insurance funds see surpluses and don't require government assistance.

But recently, figures on the German labor market have weakened considerably. According to the German statistical office, as of November, 41.9 million people were employed. That is 0.6 percent more than the same time the previous year, but compared to the 1.4 percent increase recorded at the beginning of 2012, growth has stagnated considerably.

Job miracle at a standstill

Germany's Labor Ministry painted a similar picture: In December, there were 2.8 million people registered as unemployed, 88,000 more than in November and 60,000 more than a year ago. With this, unemployment increased for the ninth consecutive month.

Despite all this, nearly all experts say the German labor market remains reasonably strong, especially in comparison to the rest of Europe. Holger Schäfer, a labor market expert at the Cologne Institute for Economic Research (IW), sees several reasons for this.

"On the one hand, we had a truly robust cyclical development - apart from in 2009, when the crisis really hit," Schäfer told DW. "That helped us a lot."

On the other hand, demographic factors helped as well, Schäfer continued. Labor supply decreased, as older workers retired and were not replaced with new workers. "And we finally reaped to some extent the benefits of the Schröder administration's reforms - the so-called Agenda 2010, which made our labor market far more efficient and flexible," Schäfer said.

The Social Democratic Party administration of Chancellor Gerhard Schröder did not, however, benefit from more honest reporting of labor market statistics. Changes in the way unemployment was being calculated led namely to an apparent increase in unemployment rates - this became especially apparent in 2005 with the introduction of new social benefit regulations. Known as "Hartz IV," they required welfare recipients to be counted as unemployed. With this, the official unemployment figure leapt from half a million to nearly 5 million.

A decade of gains

Despite this, Germany's employment figures have posted a steady increase over the past two decades. The biggest increase occurred in the late 90s and the start of the 2000s, as trade unions concentrated on retaining jobs rather than increasing wages and salaries.

And even during the crisis year of 2009, when the German market as a whole shrunk by about five percent, job figures remained high. Many businesses absorbed the drastic drop, for example in orders, initially by cutting overtime and through state-subsidized reductions in working hours.

These businesses knew that they "possessed a high measure of specific human capital," said Schröder. In other words they had good personnel who they did not intend to lose in the case of a rapid economic recovery.

Full employment realistic?

It's no wonder that, despite recent setbacks, analysts like Schäfer remain optimistic. "We anticipate a slight increase in unemployment over the yearly average - however, that's not very dramatic," Schäfer said. Currently, this yearly average is at 2.9 million, and is likely to rise to a maximum of three million, he said. "When you consider the number of new jobs, this could even amount to a small increase," he added.

Since 2013 is an election year, Hermann Gröhe - general secretary of Chancellor Angela Merkel's Christian Democratic Union - has revived an age-old campaign promise: full employment. This, Gröhe said, is a central goal "toward which we will make a clear step during the next legislative period."

Even Schäfer holds out hope of this. "It's within the realms of possibility," he told DW. The technical definition of full employment is for unemployment to be confined to three to four percent, since there are always some people who are between jobs. This low figure has already been reached in numerous German states and regions, Schäfer added.

And with Germany's unemployment rate currently at around six percent, this goal is not so terribly distant.

Date 03.01.2013

Author Rolf Wenkel / sad

Editor Ben Knight

Source: Deutsche Welle