The German success story in unemployment and manufacturing

[Chris]

German unemployment fell in May for a 23rd straight month as export-driven growth and increased spending by businesses and consumers extended a jobs boom.

The number of people out of work dropped a seasonally adjusted 8,000 to 2.97 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a drop of 30,000, according to the median forecast of 30 estimates in a Bloomberg News survey. The jobless rate declined to 7 percent, the lowest since records for a reunified Germany began in 1991.

Declining unemployment in Europe’s biggest economy underscores German resilience in the face of a clampdown on budget deficits by euro-area governments buffeted by the debt crisis and rising fuel prices that crimp household spending. Retail sales edged up in April after declining in March, the Federal Statistics Office said today.

Unemployment Declines in May as Exports Boom Powers

 

[Chris]

After performing worse than the American economy for years, the German economy has grown faster since the middle of last decade. (It did better than our economy before the crisis and has endured the crisis about equally.) Just as important, most Germans have fared much better than most Americans, because the bounty of their growth has not been concentrated among a small slice of the affluent.

Inflation-adjusted average hourly pay has risen almost 30 percent since 1985 in Germany, the kind of gains American workers have not enjoyed since the ’50s and ’60s. In this country, hourly pay has risen a scant 6 percent since 1985.

Germany also managed to avoid a housing bubble, unlike the United States, Britain, Ireland, Spain and other countries. German children have stronger math and science skills than ours. Its medium-term budget deficit is smaller. Its unemployment rate is like a mirror image of ours: 6.1 percent, well below where it was when the financial crisis began in 2007. Our rate has risen to 9.1 percent.

I’m not saying that the United States should want to become Germany. Americans remain considerably richer. We have the innovative companies — Wal-Mart, Google, Apple, Facebook, Twitter — that make other countries swoon. We remain the world’s immigration Mecca.

Yet for all the strengths of the United States, almost nobody claims that the economy is in especially good shape. It so happens that our current out-of-town guests could teach us a few things.

http://www.nytimes.com/2011/06/08/business/economy/08leonhardt.html

 

[LordBrownTrout]

They're only about 1.8T in debt also.

 

[Chris]

Unlike what happened here, German laws and regulators have also prevented the decimation of their labor unions. The clout of German unions, at individual companies and in the political system, is one reason the middle class there has fared decently in recent decades. In fact, middle-class pay has risen at roughly the same rate as top incomes.

The top 1 percent of German households earns about 11 percent of all income, virtually unchanged relative to 1970, according to recent estimates. In the United States, the top 1 percent makes more than 20 percent of all income, up from 9 percent in 1970. That’s right: only 40 years ago, Germany was more unequal than this country.

Finally, there are taxes. Germany does not have a smaller budget deficit because it spends less. Germany, you’ll recall, is the original welfare state. It has a smaller deficit because it is more willing to match the benefits it wants with the needed taxes. The current deficit-reduction plan includes about 60 percent spending cuts and 40 percent tax increases, Mr. Hüfner says. It’s like trying to lose weight by both eating less and exercising more.

As I suggested before, the American economy’s strengths may still be greater than the German economy’s. But Germany sure does seem more serious about dealing with its weaknesses.

And us? Well, lobbyists for the mortgage bankers and the N.A.A.C.P. have recently started pushing for less stringent standards for down payments. Wall Street is trying to water down other financial regulation, too.

Some Democrats say Social Security and Medicare must remain unchanged. Most Republicans refuse to consider returning tax rates even to their 1990s levels. Republican leaders also want to make deep cuts in the sort of antipoverty programs that have helped Germany withstand the recession even in the absence of big new stimulus legislation.

There is no getting around the fact that financial crises wreak terrible damage. It’s too late for us to prevent that damage, and it will take a long time to recover fully. It is not too late to learn from our mistakes.

http://www.nytimes.com/2011/06/08/business/economy/08leonhardt.html?_r=1

 

[Susan45]

After performing worse than the American economy for years, the German economy has grown faster since the middle of last decade. (It did better than our economy before the crisis and has endured the crisis about equally.) Just as important, most Germans have fared much better than most Americans, because the bounty of their growth has not been concentrated among a small slice of the affluent.

Inflation-adjusted average hourly pay has risen almost 30 percent since 1985 in Germany, the kind of gains American workers have not enjoyed since the ’50s and ’60s. In this country, hourly pay has risen a scant 6 percent since 1985.

Germany also managed to avoid a housing bubble, unlike the United States, Britain, Ireland, Spain and other countries. German children have stronger math and science skills than ours. Its medium-term budget deficit is smaller. Its unemployment rate is like a mirror image of ours: 6.1 percent, well below where it was when the financial crisis began in 2007. Our rate has risen to 9.1 percent.

I’m not saying that the United States should want to become Germany. Americans remain considerably richer. We have the innovative companies — Wal-Mart, Google, Apple, Facebook, Twitter — that make other countries swoon. We remain the world’s immigration Mecca.

Yet for all the strengths of the United States, almost nobody claims that the economy is in especially good shape. It so happens that our current out-of-town guests could teach us a few things.

http://www.nytimes.com/2011/06/08/business/economy/08leonhardt.html

Absolutely terrific article. I was left wondering if the Germans had a political party that was working against the recovery as we seem to have here. I just can't see the right trying anything that might help the recovery.

It just seems so darn sensible and I find it incredibly sad that so many people here seem to fear and hate our government that they would be afraid of trying new innovations.

Thanks for posting it. It's a keeper.

 

[uscitizen]

It must be those low taxes in Germany?

Germany Tax Rates 2011
Last partial update, March 2011
The German tax system has undergone a comprehensive reform in the year 2001 and later in 2008. This reform is intended, in principle, to ease the actual rate of tax for both individuals and companies.
Taxation of an individual's income is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2011 the Germany tax rates for an individual are 14% - 45%.
Singles pay on income above EUR 250,731 (couples, on income above EUR 501,462) income tax of 45% before 5.5% solidarity tax.


In addition to regular tax, there is a municipal trade tax of 14%-17% that is imposed by the municipality.


The standard rate of Germany corporate tax in 2011 is 15%. There is a reduced rate for part of a corporation's income.
An additional tax has been imposed to help the merger of the two Germanys. This is "solidarity tax" which is 5.5% of the normal rate payable. The tax is levied on corporations and individuals, subject to the conditions specified in the law.
In 2011 the effective corporate tax rate, including trade tax and solidarity tax is about 30%-33%.


Germany Income Tax for an Individual
An individual is liable for tax on his income as an employee and on income as a self-employed person. An individual who meets the test of a "permanent resident" of Germany will have the tax calculated on his income in Germany and from overseas.


A foreign resident who is employed in Germany pays tax only on income earned in Germany.


To be considered a German citizen, a test must be met of either a life centered in Germany or a continuous stay of 6 months in Germany.
A partnership is not a separate body for tax purposes. The income from the partnership is divided between the partners who will then each pay their tax as an individual on their share according to their share in the partnership.
An employer is obligated to deduct the tax payable, income tax and social security immediately on a monthly basis from income earned as a wage.
A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business. The advance payment is made once every three months.
Certain payments, as specified below, are deducted from taxable income.



Germany individual income tax rates ,2011


Tax % Tax Base (EUR)
0 Up to 8,004
14% 8,005-52,881
42% 52,882-250,730
45% 250,731 and over

Germany Tax Laws Tax System Germany Tax Rates 2011, WorldWide-Tax.com

 

[uscitizen]

Maybe it is their private healthcare system?

Ohh wait they have a single payor socialized system.

 

[Chris]

Other countries do a lot of things better than we do.

We need to examine what works in other countries and use those things to our advantage.

Interesting that what works in Germany is a combination of conservative and liberal philosophies.

 

[NYcarbineer]

And it gets worse...so to speak...

Sweden, the rock star of the recovery

STOCKHOLM — Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied.

And then there’s Sweden, the rock star of the recovery.

This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.

Sweden was far from immune to the global downturn of 2008-09. But unlike other countries, it is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe. And compared with the United States, unemployment peaked lower (around 9 percent, compared with 10 percent) and has come down faster (it now stands near 7 percent, compared with 9 percent in the U.S.)....

Five economic lessons from Sweden, the rock star of the recovery - The Washington Post

 

[Lars]

And it gets worse...so to speak...

Sweden, the rock star of the recovery

STOCKHOLM — Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied.

And then there’s Sweden, the rock star of the recovery.

This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.

Sweden was far from immune to the global downturn of 2008-09. But unlike other countries, it is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe. And compared with the United States, unemployment peaked lower (around 9 percent, compared with 10 percent) and has come down faster (it now stands near 7 percent, compared with 9 percent in the U.S.)....

Five economic lessons from Sweden, the rock star of the recovery - The Washington Post

The headline unemployment rate in Sweden is only 5–5.5%, but this number is extremely misleading as it only includes a small number of the people who the government pays not to work. Many unemployed are sent to so-called "labor market political activities" — activities whose only purpose is to reduce the official unemployment rate.

If we ignore this ruse, unemployment is 8%. And if you also include the enormous number of early retirees and people who live off sickness benefits, the real unemployment rate is more like 25%. The number of early retirees is 540,000, more than double the number of officially unemployed. Among non-Western immigrants, the real unemployment rate is higher than 50%.

All of this is exactly what we should expect from transfer payment benefits to people who don't work, from massive payroll taxes, income taxes, and value-added taxes. This has greatly inhibited the growth of a labor-intensive private-service sector that could have provided jobs for many of the unemployed immigrants.
The Sweden Myth - Stefan Karlsson - Mises Daily

 

[The Rabbi]

Actually Germany avoided a huge stimulus program. Lack of gov't intervention led to a strengthening of their economy. They also did not experience the real estate boom/bust the US did.
Their medical care system is bankrupt. Their unemployment rate has been high as their best export is jobs to Czechoslovakia and Poland.
I wouldn't hold the Germans up as a model, except that they avoided the mistakes of the Obama administration.

 

[Chris]

Actually Germany avoided a huge stimulus program. Lack of gov't intervention led to a strengthening of their economy. They also did not experience the real estate boom/bust the US did.
Their medical care system is bankrupt. Their unemployment rate has been high as their best export is jobs to Czechoslovakia and Poland.
I wouldn't hold the Germans up as a model, except that they avoided the mistakes of the Obama administration.

Nice lies.

How do you look yourself in the mirror?

 

[Chris]

And it gets worse...so to speak...

Sweden, the rock star of the recovery

STOCKHOLM — Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied.

And then there’s Sweden, the rock star of the recovery.

This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.

Sweden was far from immune to the global downturn of 2008-09. But unlike other countries, it is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe. And compared with the United States, unemployment peaked lower (around 9 percent, compared with 10 percent) and has come down faster (it now stands near 7 percent, compared with 9 percent in the U.S.)....

Five economic lessons from Sweden, the rock star of the recovery - The Washington Post

The headline unemployment rate in Sweden is only 5–5.5%, but this number is extremely misleading as it only includes a small number of the people who the government pays not to work. Many unemployed are sent to so-called "labor market political activities" — activities whose only purpose is to reduce the official unemployment rate.

If we ignore this ruse, unemployment is 8%. And if you also include the enormous number of early retirees and people who live off sickness benefits, the real unemployment rate is more like 25%. The number of early retirees is 540,000, more than double the number of officially unemployed. Among non-Western immigrants, the real unemployment rate is higher than 50%.

All of this is exactly what we should expect from transfer payment benefits to people who don't work, from massive payroll taxes, income taxes, and value-added taxes. This has greatly inhibited the growth of a labor-intensive private-service sector that could have provided jobs for many of the unemployed immigrants.
The Sweden Myth - Stefan Karlsson - Mises Daily

The only myth is your post.

That article if from 2006!

 

[Chris]

This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.

Sweden was far from immune to the global downturn of 2008-09. But unlike other countries, it is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe.

Five economic lessons from Sweden, the rock star of the recovery - The Washington Post

 

[The Rabbi]

Actually Germany avoided a huge stimulus program. Lack of gov't intervention led to a strengthening of their economy. They also did not experience the real estate boom/bust the US did.
Their medical care system is bankrupt. Their unemployment rate has been high as their best export is jobs to Czechoslovakia and Poland.
I wouldn't hold the Germans up as a model, except that they avoided the mistakes of the Obama administration.

Nice lies.

How do you look yourself in the mirror?

Translation: You caught me on that one.
No, every word I write is truth. Every word you write is spin, lie, or half truth.

 

[Chris]

Actually Germany avoided a huge stimulus program. Lack of gov't intervention led to a strengthening of their economy. They also did not experience the real estate boom/bust the US did.
Their medical care system is bankrupt. Their unemployment rate has been high as their best export is jobs to Czechoslovakia and Poland.
I wouldn't hold the Germans up as a model, except that they avoided the mistakes of the Obama administration.

Nice lies.

How do you look yourself in the mirror?

Translation: You caught me on that one.
No, every word I write is truth. Every word you write is spin, lie, or half truth.

Hardly.

The socialists in Sweden are kicking our ass.

 

[Chris]

Actually Germany avoided a huge stimulus program. Lack of gov't intervention led to a strengthening of their economy. They also did not experience the real estate boom/bust the US did.
Their medical care system is bankrupt. Their unemployment rate has been high as their best export is jobs to Czechoslovakia and Poland.
I wouldn't hold the Germans up as a model, except that they avoided the mistakes of the Obama administration.

Nice lies.

How do you look yourself in the mirror?

Translation: You caught me on that one.
No, every word I write is truth. Every word you write is spin, lie, or half truth.

Inflation-adjusted average hourly pay has risen almost 30 percent since 1985 in Germany, the kind of gains American workers have not enjoyed since the ’50s and ’60s. In this country, hourly pay has risen a scant 6 percent since 1985.

Germany also managed to avoid a housing bubble, unlike the United States, Britain, Ireland, Spain and other countries. German children have stronger math and science skills than ours. Its medium-term budget deficit is smaller. Its unemployment rate is like a mirror image of ours: 6.1 percent, well below where it was when the financial crisis began in 2007. Our rate has risen to 9.1 percent.

http://www.nytimes.com/2011/06/08/business/economy/08leonhardt.html

 

[Toro]

Germany has been a big beneficiary within the eurozone. Because of the problems within the eurozone, the currency does not reflect the productivity gains of the German economy, which means that the euro is undervalued for the German economy. This is why German exports are booming. If Germany were still on the mark, it would be growing slower. Also, it is a big beneficiary of the growth in China. I believe Germany exports more to China than anyone, and it is exporting primarily infrastructure and construction equipment. China is an enormously imbalanced economy, with fixed capital spending accounting for an astonishing 40-50% of total output. Real estate in parts of China are in even worse bubble than they ever were here. These are unsustainable over the long run, and probably the intermediate run. So Germany is benefiting from circumstances that are exogenous to their model, which is fine, since all economies are positively affected by exogenous events from time to time. However, we shouldn't use it as a model for us. Germany also has significant structural problems, such as a very slow growing population and an economy which relies on other countries consuming.

 

[Chris]

Germany has been a big beneficiary within the eurozone. Because of the problems within the eurozone, the currency does not reflect the productivity gains of the German economy, which means that the euro is undervalued for the German economy. This is why German exports are booming. If Germany were still on the mark, it would be growing slower. Also, it is a big beneficiary of the growth in China. I believe Germany exports more to China than anyone, and it is exporting primarily infrastructure and construction equipment. China is an enormously imbalanced economy, with fixed capital spending accounting for an astonishing 40-50% of total output. Real estate in parts of China are in even worse bubble than they ever were here. These are unsustainable over the long run, and probably the intermediate run. So Germany is benefiting from circumstances that are exogenous to their model, which is fine, since all economies are positively affected by exogenous events from time to time. However, we shouldn't use it as a model for us. Germany also has significant structural problems, such as a very slow growing population and an economy which relies on other countries consuming.

Germany has high taxes, strong unions, lower unemployment, and a strong manufacturing base. How do they do it? The government invests in helping the manufacturing side of business.

And the only reason our population is growing is because of immigrants.