Germany's labour market crisis

8th March 2005, Comments 0 comments

Germany has been reporting very depressing unemployment figures with the numbers out of work soaring to a post-war record and threatening to drag down growth in Europe. Andrew McCathie asks, what is wrong with the German labour market?

Despite hopes that Germany's record-high unemployment could start to level off in the coming months, the surge in the numbers joining the dole queues is acting as a brake on growth in Europe's biggest economy.

German companies continue to cut their labour forces

The number of Germans out of work hit a post-war record of 5.216 million in February, according to official data, driving up the unemployment rate to a staggering 12.6 percent and adding to the pressure on Chancellor Gerhard Schroeder to boost jobs as he attempts to forge ahead with a tough economic reform agenda.

While a cold winter snap and faltering growth have contributed to the jump in the numbers registered as out of work, the increase followed the introduction of a key Schroeder job market reform aimed at merging welfare and unemployment benefits.

The result has been to force those receiving welfare to register as unemployed and as a consequence helping to push up the numbers out of work to levels that Germany has not seen since the 1930s and the rise of Hitler.

Despite the sharp rise, Ralph Solveen, economist with Germany's Commerzbank AG, believes that the situation on the labour market has stabilised and that the numbers out of work should fall below five million in the coming months.

However, coming in the wake of an unexpected backlash against Schroeder's ruling Social Democrats (SPD) at an election this month in the northern German state of Schleswig-Holstein, the soaring jobless numbers has set alarm bells ringing across the SPD, in particular ahead of an even more crucial poll to be held in May in the nation's biggest state, North Rhine-Westphalia in May.

The result has been talk of the government and conservative-led opposition coming together to draw up a new jobs and growth pact to help underpin the labour market.

*quote1*But unnerved by the growing risks of unemployment in Germany and the uncertainty created by the Schroeder reform drive, consumers have been reluctant to open their wallets and to spend.

The result has been to dampen domestic demand in the country with economists forced to revise down their growth forecasts for the nation and corporate Germany continuing to make big lay offs as a way of cutting costs in the face of tough global competition, the strong euro and high oil prices.

Attracted by the low-wage, high-skilled economies of regions such as Central Europe and parts of Asia, many German companies have been expanding their investments and work forces in the new European Union member states along with countries including China, Malaysia and Thailand.

This has forced German workers in key sectors to accept lower wages and to work longer hours as part of pay deals to keep their jobs in Germany.

After emerging from three years of economic stagnation, the German economy grew by a modest 1.6 percent last year, with many economists forecasting that growth could come in at just one percent in 2005 on the back of weak consumer demand.

That is well short of the two percent growth rate that most analysts believe is necessary for the German economy to create jobs.

But despite the grim jobless tally, Schroeder can take some heart from the latest data showing employment increasing as his labour market reforms cut in.

This includes measures such as so-called one-euro jobs and mini jobs aimed at helping the unemployed back into the workforce as well as programmes to encourage those without jobs to transform themselves into self-employed businesses.

*quote2*Based on International Labour Office methods, the latest data shows employment rising by 14,000 in January after increasing by 24,000 December. Vacancies also surged by 21,000 in February.

But in the meantime, many German companies continue to reduce their labour force.

In recent weeks alone, ailing HVB Group, Germany's second biggest bank, said it is planning to lay off up to 2,400 workers, while consumer electronics company Miele & Cie KG said it was slashing its workforce by 10 percent.
March 2005

[Copyright Expatica 2005]

Subject: German news, unemployment, labour market, jobs

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