The German model: boon or bane?

(1)

The German Model–

boon or bane?

Dr. Michael Dauderstädt

(2)

Germany‘s changing

economic governance

1950-1965: Ordo-liberalism; social market

economy; fiscal surplus;

1965-1975: keynesianism; deficit

spending; monetary policy aiming at

price stability

1975-1998: dominant monetary policy vs.

deficit spending

(3)

Germany‘s Economy:

Laggard or Miracle?

Hype 1 (The Laggard): 2000-2006

• Slow productivity growth

• Persistent unemployment

Hype 2 (The Miracle): 2006-2008/2010-

?

• Export-led growth

(4)

Germany‘s

export

success

Demand-led?

capital

outflow from

Germany

Slow

domestic

growth

Emerging

market

growth

Eurozone

periphery

boom

Supply-led?

Low

German

wages

Labour

market

reform

More precarious

jobs and inequality

Outsourcing

Offshoring

German

product mix

(5)

Sector accounts in Germany

(6)

Exporte, Importe, Bilanz (in % des BIP)

-10,00

0,00

10,00

20,00

30,00

40,00

50,00

1970

1980

1990

1999

2009

Germany‘s Trade

Development

(7)

Unit labor costs

90

95

100

105

110

115

120

125

130

135

140 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(8)

Short-Time Work Works

(9)

The exaggerated role

of manufacturing

• Manufacturing output is highly

cyclical (strong decline in 2009,

strong recovery in 2010/11)

• Share of manufacturing is declining,

even in Germany

• Services create value, too (Germans,

please take note!)

(10)

Employment by sector

(Hours, change in %)

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0 1971-1980

1981-1990

1991-2000

2001-2007

(11)

Employment by sector

(Persons, change in %)

-6.0 -5.0 -4.0 -3.0 -2.0

-1.0

0.0

1.0

2.0

3.0 1971-1980

1981-1990

1991-2000

2001-2007

(12)

Slow productivity growth

-1

0

1

2

3

4

5 1995-2000

2000-2005

1995-2000

2000-2005

(13)

Slow productivity growth

in the service sector

-1

0

1

2

3

4

5 1995-2000

2000-2005

1995-2000

2000-2005

(14)

Germany‘s reforms:

Farewell to corporatism?

• Declining membership of unions and

employers associations

• Decentralization of collective bargaining

• Changing corporate governance

• Disentangling „Deutschland AG“

• Privatization

(15)

Declining density of

union membership

18 20 22 24 26 28 30 32

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

(16)

Declining coverage of collective

bargaining agreements

30 35 40 45 50 55 60 65 70 75

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

(17)

Cross shareholdings

in Germany 1996

(18)

Cross shareholdings

in Germany 2008

(19)

Germany’s economic performance

before and after the reforms

19

Indicators

Dimension

Before

Reform

1995-2003

After Reform

2003-2011

Growth

Average annual rate of

growth

1.95%

2.34%

Investment

Average ratio (in% of

GDP)

21%

18%

Productivity

Average annual rate of

growth

0.97%

0.72%

Real wage growth

Average annual rate of

growth

›0

a

_-0.8%

b

Unit labour costs

Average annual rate of

growth

0.29%

0.45%

Unemployment

Average ratio

10.3%

9.1%

Wage share

Average ratio

54%

51%

c

Labour market

flexibility

Average ratio of entries

into and exits from

employment

(20)

Germany’s economic performance

before and after the reforms

20

Indicators

Dimension

Before

Reform

1995-2003

After Reform

2003-2011

Income distribution

Gini-coefficient

0.27 (1998)

0.31 (2005)

Employment

Additional new jobs

1,754,000

831,000

Hours worked

(billions)

Average annual amount

57,068

56,581

Export growth

Average annual rate of

growth

9%

7%

Export surplus

(Current account

in% of GDP)

Average ratio

-1%

5%

c

Budget deficit (in%

of GDP)

Average ratio

2.1%

1.9%

Government debt

(in% of GDP)

(21)

Germany‘s price:

Rising inequality

• Fastest rise of inequality within

OECD

• Stagnating real wages

• Declining wage share of GDP

• Growing wage dispersion

• The rich get wealthier

(22)

Declining wage shares –

above all in Germany

-1,5 -1 -0,5 0 0,5 1

1970-1985 1985-1995 1995-2005 2000-2005

D F UK NL S USA

(23)

Germany:

(24)

Net monetary assets of households

(positive), corporations and government

(negative = debt; inverted) in percent of gdp in Germany 1991-2010

Dotcom-Krise

(25)

(26)

The employment effects

of labour market reforms

(27)

(28)

April 2011 Friedrich-Ebert-Stiftung – Abt. Wirtschafts- und Sozialpolitik 28

(29)

Tariflohnentwicklung in

Deutschland und

(30)

Das traditionelle deutsche Wachstumsmodell

Überblick Lohnstückkostenentwicklung (Gesamtwirtschaft), 2000-2011

90

95

100

105

110

115

120

125

130

135

140 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(31)

Das traditionelle deutsche Wachstumsmodell

Überblick Lohnstückkostenentwicklung (Gesamtwirtschaft), 2000-2011

90

95

100

105

110

115

120

125

130

135

140 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(32)

Das traditionelle deutsche Wachstumsmodell

Überblick Lohnstückkostenentwicklung (Gesamtwirtschaft), 2000-2011

90

110

130

150

170

190

210

230

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

(33)

Das traditionelle deutsche Wachstumsmodell

Entwicklung der kumulierten Lohnstückkosten, 2000-2010

0

1

2

3

4 2000-2010

Griechenland

Irland

(34)

Nominale

Lohnstückkosten im

Verarbeitenden

(35)

(36)

(37)

(38)

Das traditionelle deutsche Wachstumsmodell

• Sinkende Lohnquoten – vor allem in Deutschland

-1,5 -1 -0,5 0 0,5 1

1970-1985 1985-1995 1995-2005 2000-2005

(39)

(40)

(41)

(42)

(43)

(44)

(45)

(46)

Das traditionelle deutsche Wachstumsmodell

Überblick über die Leistungsbilanzsalden (in % des BIP), 2005-2011

-8

-6

-4

-2

0

2

4

6

8

10 2005

2006

2007

2008

2009

2010

2011

(47)

Das traditionelle deutsche Wachstumsmodell

Überblick über die Leistungsbilanzsalden (in % des BIP), 2005-2011

-20

-15

-10

-5

0

5

10 2005

2006

2007

2008

2009

2010

2011

Portugal

Spanien

Irland

Italien

(48)

Das traditionelle deutsche Wachstumsmodell

Überblick über die Leistungsbilanzsalden (in % des BIP), 2005-2011

-25

-20

-15

-10

-5

0

5

10 2005

2006

2007

2008

2009

2010

2011

(49)

Das traditionelle deutsche Wachstumsmodell

Überblick über die Wachstumsraten (in %), 2006-2011

-6

-4

-2

0

2

4

6 2006

2007

2008

2009

2010

2011

(50)

Das traditionelle deutsche Wachstumsmodell

Überblick über die Wachstumsraten (in %), 2006-2011

-8

-6

-4

-2

0

2

4

6

8 2006

2007

2008

2009

2010

2011

Portugal

Spanien

Irland

Italien

(51)

Das traditionelle deutsche Wachstumsmodell

Überblick über die Wachstumsraten (in %), 2006-2011

-20

-15

-10

-5

0

5

10

15 2006

2007

2008

2009

2010

2011