Gustav A. Horn

Macroeconomic Implications of the German Short-time Work Policy during the Great Recession

Despite a sharp fall in GDP, German employment in terms of employees stayed remarkably robust during the Great Recession. At the same time, hours worked per employee declined significantly. This is seen as the core of the German employment ‘miracle’. A general discussion arose about the reasons behind this astonishing labour market performance and the role of short-time work (STW) as a kind of exportable panacea. In this article we look at the macroeconomic implications of STW and other measures of internal flexibility, in particular focusing on the quantification of safeguarded jobs during the crisis. We find that STW played an important role and helped to safeguard employment in Germany during the Great Recession. However, we show that other measures of internal flexibility (working time accounts, contractual arrangements on working time reductions, reduction of overtime) were equally important. Together with STW these instruments saved around 1 million jobs. To explain and understand the German success story, the features of the German core model – with a strong employer–employee relationship of mutual trust, strong employment protection, traditional standard working contracts and strong works councils at the firm level – are of key importance.

Wages and the Euro

Economic Policy in Wake of Monetary Union.- An Economic Policy Framework for European Monetary Union: Some Preliminary Theoretical Considerations The Function of Exchange Rates Monetary Policy in a Single Currency Area Monetary Convergence Monetary Strategies after the Introduction of Monetary Union Fiscal Policy after the Beginning of Monetary Union.- The Role of Wage Policy after the Introduction of Monetary Union: Wage Development and Convergence in the Run-Up to Monetary Union Wage Negotiation Systems in Europe Labour Market Flexibility in a Common Currency Area Some Theoretical Considerations Empirical Analysis Institutional Conditions for an European Wage Policy Degree of Centralisation, Growth, Structural Change and Employment Degree of Centralisation and Labour Market Flexibility Non-Wage-Related Competitive Elements Wage Policy in a Common Currency Area.- Simulations on the Future Development for the European Labour Market: The Model and its Modifications The Structure of the Simulation The Effects of Monetary Union Nominal Wage Decreases Real Wage Decreases Transforming the Social Security Systems Productivity-Oriented Wage Formation Reacting to Shocks.- Conclusions and Economic Policy Recommendations.

Much ado about nothing? Recent labour market reforms in Germany ; a preliminary assessment

The article examines the macroeconomic effects of the recent labour market reforms in Germany. The reforms increased the downward pressure on wages and led to rising income inequality. Many German economists welcomed this effect, because they consider lower wages and higher wage dispersion major prerequisites for stronger employment growth. The theoretical analysis shows that a strategy of wage restraint might make sense in a small open economy, where exports play a dominating role. However, in a large and less open economy the negative effects of wage restraint on domestic demand are likely to outweigh the positive effects of enhanced competitiveness as could be observed in Germany in recent years. A comparison of the most recent two upswings confirms that the labour intensity of growth has not risen since the reforms. At the same time German wage restraint has contributed to increasing trade imbalances in the euro area.

Gibt es eine Reformdividende? Eine vorläufige Bilanz der Arbeitsmarktreformen

Im März vor fünf Jahren stellte der damalige Bundeskanzler Schröder in seiner Regierungserklärung die Grundzüge der Agenda 2010 vor. Das Maßnahmenpaket umfasste Reformen am Arbeitsmarkt, bei der Sozialen Sicherung und in der Steuerpolitik. Welche Ergebnisse hatte die Reformpolitik und wie sind diese zu bewerten?

Gap in relative importance of service activities closed

ConclusionOverall it is evident that the relative importance of services and service activity trends in the USA and west Germany is very similar. In other words the activity structure in Germany is indeed “modern”. Also in highly productive areas of production, value adding largely takes the form of service activities. Thus the employment problem in Germany results not from outdated activity structures; the causes are rather those macroeconomic reasons to which the DIW has repeatedly drawn attention7.German economic policy must ensure that the framework of macroeconomic conditions is changed to allow jobs to be created. Whether these jobs are created in certain branches or activities is of secondary importance. Having said this, in Germany, too, it is to be expected that more than two out of every three new jobs created will be service jobs. Even so, a quarter of new jobs will be created in industry.

No significant service gap between west Germany and the USA

ConclusionsThe analyses show that a significant “services gap” does not exist between west Germany and the USA. Such a gap is not even evident in the area of low-skill service activities, such as in catering, once the marginal employment relations — the importance of which is understated by the official statistics — are included.This finding invalidates the empirical basis for economic policy proposals for an expansion of employment in service branches as a way out of the employment crisis. It is evident that a solution to Germanys current employment problems can only be found in a strategy that increases the scope for employment at the macro-economic level, i.e. irrespective of sectoral developments and whatever the implications of this for the distribution of the various types of activity. Having said this, the heavy bias in the output structure of the German economy in favour of industrial output suggests that an additional employment potential does exist in services, especially personal services.

The Productivity Puzzle: It’s the Lack of Investment, Stupid!

Gustav A. Horn, Macroeconomic Policy Institute (IMK), Dusseldorf, Germany. In recent years, advanced economies around the globe have experienced a pronounced slowdown in productivity growth. This phenomenon and especially this recent aggravation are not yet well understood, and there is no consensus on the reasons for this slowdown. Since productivity growth is the main driver of economic growth, it is essential to improve our understanding of this productivity puzzle and, if possible, to draw some lessons for crafting policies which can improve productivity growth in Europe.

Warum der Staat handeln muss

Die gegenwärtige Krise besitzt eine starke Stimmungskomponente. Da ohnehin, wie Ludwig Erhard (1957) betonte, Wirtschaftspolitik zur Hälfte Psychologie ist, muss auf diese beson ders eingegangen werden.1 Die erste Krisenwelle wurde in erheblichem Maße über „Stim mungskanäle“ verbreitet, hat ihre Ursache in den USA und wurde deshalb in Europa zunächst wenig ernst genommen. Ihre ersten Anzeichen waren sich häufende fi nanzielle Schiefl agen von US-amerikanischen Hypothekenbanken ab dem Jahr 2006, die zunächst weitgehend schadensfrei am Ausland vorbeizugehen schienen. Das liegt auch daran, dass die Tiefe und Tragweite der Probleme unbekannt waren. Es wurde zunächst vor allem amerikanisches und nicht internationales bzw. europäisches Vertrauenskapital vernichtet. Daher war die Funkti onsfähigkeit des europäischen, insbesondere des deutschen Bankensystems kaum einge schränkt, das Problem wurde mit einer gehörigen Portion Attentismus angegangen. Das än derte sich erst, als europäische BankenDie durch die Finanzmarktkrise ausgelosten Probleme greifen derzeit rasch auf die realwirtschaftliche Ebene uber. Wie verhalten sich Finanz- und Konjunkturkrise zueinander? Kann und sollte man die drohende Rezession jetzt mit Mitteln der Wirtschaftspolitik bekampfen? Welche Instrumente sind geeignet? In welcher Dimension und in welchem Zeitrahmen sollte die Wirtschaftspolitik handeln? Was ist von dem Konjunkturpaket der Bundesregierung zu halten?

The Role of Wage Policy after the Introduction of Monetary Union

With the introduction of European Economic and Monetary Union (EMU), wage policy is being allocated a decisive role in the EU member states. With the loss of sovereignity over an independent monetary policy and an independent currency, differences in inflation rates in tradable goods between the individual countries are no longer possible. If regional competitiveness is not to be endangered, in a monetary fully integrated market nominal wage increases are limited by the expected productivity growth in the home country and the trend of unit labour costs in the other countries. This restriction is also true for social security systems, which are financed by employers contributions: if contribution rates rise, wage policy must take such increases into account so as not to affect unit labour costs. Sanctions in the case of damage to price stability, which manifests itself in rising unemployment, no longer occur with a pronounced delay (as would be the case with national monetary policy, which may initially tolerate a higher inflation rate and only later takes a restrictive course) but immediately, with the loss of regional competitiveness. This increases the pressure for fast wage adjustment. Furthermore, European monetary policy imposes a more general restriction for wage policy throughout Europe. The relationship between wage policy and monetary policy, which used to be determined at the national level for countries with independent currencies, will now be determined at the European level.

Simulations on the Future Development of the European Labour Market

The simulations were carried out on the basis of the Oxford Economic Forecasting (OEF) model, an econometric multi-country model that encompasses the main economic links between economies, i.e. trade flows, interest rates, and exchange rates.100 In the case of this particular analysis, the modelling of the labour market is of decisive significance.