Feb 082012
 February 8, 2012  Posted by at 3:58 pm Finance

.Euro28The latest data out of Europe shows unemployment in the EU periphery significantly worsening, economic growth rates in Germany, France, Italy and Spain hovering between 0 to -0.3% and German industrial output and exports falling 2.9% and 4.3% in December month-over-month respectively, which are the fastest rates of contraction experienced since January 2009. Clearly, all is not well in the real economic sectors of Europe.

Yet, one recent data point that stands out, at least for now, is Germany’s record level of employment. The unemployment rate currently stands at 6.7% according to official data, contrasted with the 23% in Spain and 18% in Greece. As with most official numbers in the “core” countries of the global economy, the picture gets much worse when one digs just a little bit beneath the surface [see the recent U.S. jobs report]. Sarah Marsh and Holger Hansen report on the “dark side” of Germany’s labor sector for Reuters.

Insight: The dark side of Germany’s jobs miracle


Wage restraint and labor market reforms have pushed the jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive.

But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.

Labor office data show the low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the “job miracle” has not prompted Germans to spend much more than they have in the past.

Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former communist east German states.

“I’ve had some people earning as little as 55 cents per hour,” said Peter Huefken, the head of Stralsund’s job agency, the first of its kind to sue employers for paying too little. He is encouraging other agencies to follow suit.

Data from the European Statistics Office suggests people in work in Germany are slightly less prone to poverty than their peers in the euro zone, but the risk has risen: 7.2 percent of workers were earning so little they were likely to experience poverty in 2010, versus 4.8 percent in 2005.

It is still lower than the euro zone average of 8.2 percent. But the number of so-called “working poor” has grown faster in Germany than in the currency bloc as a whole.

It should be quite obvious by now that the current system is structured to place countries in certain designated roles, which often masks the reality of what’s happening to the people within them. You have your trade surplus (creditor) nations and your deficit (debtor) nations, your producer nations and consumer nations, your “deregulated” nations and your “socialist” nations. But the reality of a complex, dynamic global economy is much different than these simple labels would suggest.

As the report quoted above makes clear, Germany’s deregulated and uber-competitive labor market has come at the expense of growing risk of poverty and drastic wealth inequality. Normally, no one would pay attention to these consequences of shrinking corporate costs, but now that corporate profits are coming under pressure from the revenue side (depressed domestic demand and exports), they are forced to. Some people actually praise the “flexibility” and low-skill requirements of Germany’s “mini-job” sector, but it is really nothing more than a recipe for disaster.

Employers have little incentive to create regular full-time jobs if they know they can hire workers on flexible contracts.

One out of five jobs is a now a “mini-job,” earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.

“Regular full-time jobs are being split up into mini-jobs,” said Holger Bonin of the Mannheim-based ZEW think tank.

And there is little to stop employers paying “mini-jobbers” low hourly wages given they know the government will top them up and there is no legal minimum wage.

Trade unions and employers in Germany traditionally opt for collective wage agreements, arguing that a legal minimum wage could kill jobs, but these agreements only cover slightly more than half the population and can becircumvented.

“A lot of my friends work as carpenters, but companies describe them as janitors in their contracts to avoid paying the salary negotiated in the collective wage agreement,” said one 33-year-old unemployed man in Stralsund who declined to give his name.

The deregulation of temporary agency work has also given employers less incentive to hire workers on staff contracts with job protection and decent pay. Temporary workers are often paid less than staff in Germany.

Low wages for mini-jobbers and increased pressure on the unemployed to get a job have had a deflationary impact on salaries across the board, some economists say.

As more and more German people have slipped into the poor class of temporary mini-workers, increases in wage inequality between the low-wage workers and everyone else have outpaced that of every other OECD nation except South Korea and the United States. So while everyone focuses on the unsustainable deficits and “socialist” policies of the Euro periphery, we should remember that super-producers like Germany have their own unsustainable roles to play in our current global and systemic crises.

“Whatever government comes next, measures to make the workforce more flexible will not pick up at the same pace. We’ve reached a critical mass and I think it won’t go much further.”

ILO’s Ernst says Germany can only hope that other European countries do not emulate its own wage deflationary policies too closely, as demand will dry up: “If everyone is doing same thing, there won’t be anyone left to export to.”

Exactly! The situations that various nations now find themselves in are largely a function of complex historical circumstances and their evolution over time. It is a history marked by forms of colonial oppression and concentration of wealth/resources, as well as malice, corruption and over-consumption. We cannot simply divide those features up and attribute them to one country or another, as they simultaneously exist in almost all countries.

There is no doubt that some fit better into specific paradigms than others, but they are all sides of the same surface. It is a surface of economic, social, cultural and political organization that has been stretched to its limits, and can no longer remain one cohesive structure. Greece is not causing the systemic deterioration any more than Germany is, and the same obviously goes for everyone else. Unfortunately, most people who actually make top-down decisions in complex societies fail to recognize that reality until it is far too late to make a difference.

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    The latest data out of Europe shows unemployment in the EU periphery significantly worsening, economic growth rates in Germany, France, Italy and Spai
    [See the full post at: Employment = Poverty and Inequality]


    unfortunate website, just lost many readers, can’t access the discussions. what a shame.


    Off topic OT

    unfortunate website, just lost many readers, can’t access the discussions. what a shame.

    This is a much better structured forum for discussion and most readers will soon get over the shock of the new.


    Hi All, I’ve made two posts and can’t find either of them. This may well be a better set up, but that doesn’t matter so long as people don’t know how it works – and it isn’t intuitive or else I’d be able to find my post in “Finance”, whatever that is since I can’t find that, either. Don’t have much time to dig around or I might find it.

    How about a main article tutorial that explains how to use the forums?

    TIA and keep up the good work.



    You must get into the forum if you want to see article/topic threads. The bottom bar link may not be working right now – we’re trying to fix that. The other way for now is to click on “posts in discussion” at the bottom of the article’s page. Once in the forum, click on recent topics or my topics to see your topic.


    Let’s keep cool, peoples… it’s very early days. Setting this up is not easy – even Apple and Microsoft work out their bugs in the marketplace – and a little patience will reward everyone – tyros and pros. Thank you to all who responded to my request for help.

    John Day

    Hey, where’s El Gallinazo and Greenpa and all the smart, clever folks?


    Would this wage deflation environment make Germany more vulnerable to imported oil price shocks, driving the cost of living past critical mass?


    Sorry but I do not find this new format to be user-friendly.



    It’s a learning curve, please persist. I am struggling a bit, but one of my invisible freinds is telling me this has a lot of potential, so – ONWARDS.


    I think that what’s missing from the old site is that there was only one forum so everyone hung out there. Now we are to “discuss this article.” Perhaps you could consider instituting a “General Forum” that we could have more wide ranging discussions in as in the the old format. Not dissing this, like the set-up of the site and articles but… as above.


    We can always change the format depending on feedback I suppose, have to ask Dan though. I personally like the idea of a general forum to chat on – a feature article and then turn off comments on commentaries.


    Hi VK, I think the trick is to make the forum intuitively accessible.

    Do that and things should go much more smoothly. How about a top tab named “Forum”?


    Everyone’s a critic. Including me.

    There is nothing I like about the redesign. Front page way to busy. SIMPLIFY.


    Firstly, congratulations on the new site. As a webmaster myself I know how much work it takes to set something like this up, and how there will always be those unhappy with what you do.

    I’d make a couple of suggestions. I tried the Wibiya toolbar, but removed it from my site, because at the end of the day, it didn’t add anything I couldn’t do by other means. The Share popup on pictures is obtrusive, a simple ‘Share This’ button on the page will do the same and allow a choice of social networking sites to share on.

    I like the general layout, and can see the thought that has gone into this, and I am enjoying exploring the new site.


    As VK said, we’ll look into all possibilities of getting more old site community feel back into comments.

    Meanwhile, AEP has a pretty good post on the Greek death spiral in comparison to Germany.

    This is what a death spiral looks like.

    It is what can happen if you join a fixed exchange system, then take out very large debts in what amounts to a foreign currency, and then have simultaneous monetary and fiscal contraction imposed upon you.

    Germany discovered this on the Gold Standard when it racked up external debt from 1925 to 1929 (owed to American bankers) in much the same way as Greece has done.

    When the music stopped – ie, when the Fed raised rates from 1928 onwards – Germany blew apart in much the same way as Greece is blowing apart. This is not a cultural or anthropological issue. It is the mechanical consequence of capital flows into a country that cannot handle it, as Germany could not handle it in the late 1920s.

    By the way, Greeks work an average 42 hours a week, one of the highest in Europe. Just want to put the record straight on that.


    Supergravity post=196 wrote: Would this wage deflation environment make Germany more vulnerable to imported oil price shocks, driving the cost of living past critical mass?

    Yet another thing leaders of the developed world have failed to even consider, in public at least. People are being squeezed left and right because that’s what the system requires to grow, but that growth is its own worst nightmare.


    Sometimes one’s best efforts for improvement fail to retain the best of the past. No verdict yet, but I miss reading, posting with, and learning from many of the long-time, very adept posters here at TAE. Still I will be taking a look on occasion to see how things develop.
    2012 could well be a year of great changes, when much could be tossed around here at TAE such as new lifeboat ideas and personal resource notions.
    The long emergency continues…


    we want our el g and greenpa posts!

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