The German economy -- a snapshot

Written on 11 August 2015.

This article constitutes a French-German dialogue between Heinrich von Loesch (in English) and Gabriel Colletis (in French)

Ceci est un dialogue franco-allemand entre Heinrich von Loesch (en anglais) et Gabriel Colletis (en français)

Precarious employment and casual jobs

   Currently, the German labor market is characterized by a decreasing number of temporary contracts from 8.9 percent (2011) to 8.1 percent in 2014, according to the Statistical Office. In 2014, total employment hit a new record of 42,6 million persons. Workers and employees are seen in a better negotiating position as a result of the booming economy and conditions close to full employment.

   Still, there are close to 2 million people on short term contracts, especially in gastronomy, academia, health and welfare.  Current U.S.-style legislation perrmits employers to hire and fire freely with contracts up to two years' duration. This is an incentive for employers to hire on a trial and error basis. At the same time it offers especially young people easy access to employment and income.

   However, in 2014 some 41,4 percent of workers depended on atypical arrangements.  In 2004, their share had been 32,2 percent, according to trade union statistics. These arrangements include agency contract workers, "mini jobs" (a German specialty = low paid, tax free, limited work hours jobs) and part-time jobs.

   These atypical arrangements account for the very high employment quota currently recorded. Part of them represent workers who could not find full employment and took the second best. They often need supplementary welfare to make ends meet. Others, especially women, take up atypical employment to make some extra income for the children, for the fancy family automobile (so important for Germans), to have health insurance or, simply, to escape housewives' boredom. According to the union statistics, 75 percent of those in atypical arrangements are women.

   Clearly, these low paid jobs offer little security in tems of old age pensions and are seen as a source of approaching new poverty. At the same time they provide the German economy with a remarkable flexibility. Employers can, for instance, convert a full-time regular job into a string of several atypical precarious jobs giving them less hassle with sick leave, vacations, maternity etc. of their staff.

   Most of the workers who are unhappy in their job are found among the contract workers and the part-timers. But only one among eight working  in Germany is unhappy. The overwhelming majority like to work and like their jobs, even those receiving less than the newly postulated minimum wage.

GC : en dépit des avantages de flexibilité que vous décrivez, la diffusion assez large des emplois atypiques est synonyme de formes inédites de pauvreté dans le pays actuellement le plus prospère d’Europe.

Par ailleurs, le fait que le lien entre travail et revenu se distende (des compléments de salaire étant apportés sous forme de transfert) est également un problème.

Sauf mauvaise compréhension de ma part du modèle socio-économique allemand, ces deux traits me semblent plutôt contradictoires avec ses principes fondateurs.

Enfin, la forte proportion de femmes dans ce genre d’emploi n’est pas sans effet sur la place des femmes dans la société allemande.

HvL:  I wonder if atypical forms of employment are not, increasingly, resulting from new atypical forms of business. Rapid technological and organizational change gives rise to more short-lived, fast evolving enterprises especially in the outsourcing and service sectors, rapidly inflating and deflating their staff. America shows that employees are not scared by short term contracts as long as the market is vibrant and a new job is easy to be found. Germans are rather conservative; they hate to clutter their resume with a quick succession of short term assignments, and employers respond accordingly to attract qualified candidates.

Still, atypical arrangements do not necessarily mean lower emoluments. Sometimes better pay or fringe benefits serve to compensate for less security.

Depending on foreign trade

   The German economy is using the current good business climate and the rock-bottom interest rates for transformation and modernization in many directions.

   In industry, progress in automatization and robotics is reducing labor costs even further. Also, it tends to eject the middle level staff, the typical German Facharbeiter who is quite specialized and computer literate without being an engineer, an information specialist or a business administrator.  The new industry needs mainly top level technicians and economists for R&D, as well as untrained labor for those activities which digitization cannot handle. In this situation, the Facharbeiter and the office equivalent, the Sachbearbeiter are urgently required to upgrade their qualifications to avoid being axed.

   The new economy offers and requires more flexibility in terms of workplace location and hours worked. The German language is gradually replaced by English. Cross-border cooperation inside Europe and beyond is not only blurring the origins of the products but also joining bureaucracies which is tough for Germans who are usually very proud of their procedures and habits. Call centers and back-office work first moved to places such as Bosnia (where people speak some German) and then further out to countries like the Philippines and India.

   The enormous economies offered by digital processes, knowledge management and robotics permitted the industry to return to Germany many production facilities which had been set up abroad during the 1990s.

   Distribution is the sector which is about to be revolutionized by the advent of the RFID based self-serve cash register. Young Germans love to learn the profession of Einzelhandelskaufmann, retail sales person, not realizing that within a few years' time hundreds of thousands of them will lose their cashier jobs and flood the -- mainly female -- labor market. Lack of technical qualifications will send them to the bottom of the labor market creating a social problem of considerable proportions.

GC: il est certain que les progrès de l’automation dans le secteur industriel ainsi que celui des services va bouleverser la structure des emplois et sans doute aussi leur nombre, risquant fort d’accroître le taux de chômage et le dualisme de nos sociétés.

Ceci rejoint le premier point de notre dialogue (l’accroissement en cours des inégalités).

La question que nous devons nous poser, en Allemagne comme en France, est (une fois de plus !) : « que faire ? ». Il est clair que plus la croissance économique est faible et plus les gains de productivité potentiels sont forts, plus le nombre d’emplois disponible diminue (à temps de travail constant).

Cependant la question posée dans ce deuxième paragraphe n’était pas exactement celle-ci. Elle consistait en un constat : celui (1) de la grande dépendance de l’Allemagne à l’égard de ses exportations et (2) la montée d’importations « low cost » liées aux formes nouvelles de pauvreté.

Sur le premier point, cela pourrait plaider en faveur d’une progression raisonnable des revenus du travail afin de stimuler la demande intérieure. En d’autres termes, un partage plus équilibré des gains de productivité qui risque toutefois de mécontenter les détenteurs du capital des entreprises dont les attentes (dividendes) sont de plus en plus fortes, en Allemagne comme ailleurs.

S’agissant du second point, je n’ai rien à ajouter si ce n’est qu’il confirme ce que j’écris dans le premier paragraphe. Une société allemande qui, à l’instar de la société américaine, risque d’être de plus en plus clivée, de plus en plus inégalitaire.

Hvl: An increasing number of Germans, especially  young intellectuals, do not believe in growth anymore. They consider the current level of economic development sufficient (if not too high) and preach resource conservation. However, progress cannot be stopped. Labor saving innovation will displace workers and create unemployment unless the economy continues to grow and its growth absorbs the jobless (perhaps at a lower level of qualification). Innovation and investment are the basis of a foreign trade-oriented economy such as Germany's; growth is a by-product of this orientation.

Although Germany is currently Europe's economic powerhouse, it is not a kind of inflated Switzerland where a trainee in a discount store can earn the equivalent of over 4000 euro/month. Remember Berlin with 1 million people receiving government support! Germany has a sizeable share of population living on breadcrumbs, as it were. Although these people have an abode, a TV set, perhaps even a smartphone and a car, they are still poor. In the past days of inflation, the inflation eroded their purchasing power and made them poorer over time. Now it is the invisible inflation of a changing living standard which makes them poorer. To illustrate the change: first there was, for instance, a telephone booth in the neighborhood, where the poor could make their calls. Then everyone had a private phone, and the booth disappeared. Then you were expected to have a cellphone, now a smartphone. Now you can't visit a government office and take a number to wait, as you did. You must register online. If you don't have access to the Internet you are in trouble because the neighborhood internet cafe/copyshop has disappeared. In conclusion: the invisible inflation renders your life more expensive and more complicated. The neighborhood grocery has closed down: to get to the supermarket you need a car or at least a bike with hanger.

In a way, these people remain poor no matter what the statistics tell us. With a continuously increasing per capita income and the upper percentiles getting richer all the time, Germany's Gini coefficient must be rising.  To some extent, legislation and income redistribution can counteract this trend and avoid the worst scenarios that can, for instance, be found in Anglo-Saxon countries. Still, the seemingly inexorable trend toward more inequality will divide Germany into a well-to-do sector and another one which resembles the "Third World".

GC : je suis d’accord avec ce constat qui n’a rien de rassurant. Je voudrais ajouter que la financiarisation des économies procure aux détenteurs du capital un avantage de revenu lié à la mobilité. Ce sont les acteurs les moins mobiles ou dont la mobilité se réalise dans des conditions de précarité (les migrants contraints) qui perçoivent la part la plus faible du revenu total.

Regional discrepancies

   The lack of economic and social equilibrium continues to trouble Germany. Originally, the Bonn republic was quite balanced, Berlin was virtually excluded.  Came the re-unification and the tremendous job to rebuild the infrastructure and the economy of the "new" Länder.  The public money streamed to the East and the qualified easterners streamed to the West where they were gladly received. This exchange has balanced the situation: the remaining easterners are now fairly well off, their infrastructure is better than in the West.

   Some eastern Länder where the economy is still limping, such as Saxony-Anhalt, are also fast losing population. To the contrary there are the top performing Länder such as Bavaria, Baden-Württemberg, Hessen and Hamburg which are attracting internal migrants. Even Berlin where one third of the population is living on government handouts has started to develop economically and to attract migrants.

   The disadvantaged Länder are now to be found not only in the East but also in the West, especially in the former rust belts of the Ruhr and Sarre The legacy of the heavy industries -- socio-economically and environmentally -- seems to discourage investment in clean new technologies. Munich, Stuttgart, Hamburg and perhaps Berlin are the new tech centers.

GC : il est inquiétant d’observer, un quart de siècle après le début du processus d’unification, que l’écart de productivité du travail dans les anciens et les nouveaux Länder reste à ce point important et ne se résorbe pas. Les revenus du travail, en principe, devant refléter le niveau de productivité, cela signifie que les salaires dans les nouveaux Länder devraient être sensiblement inférieurs à ceux en vigueur dans les anciens Länder…

Cela a deux conséquences :

- un même salaire minimum ne peut être versé dans des espaces où existe un différentiel important de productivité

- si les salaires reflètent à peu près les écarts de productivité, alors existe un dilemme : soit accepter que les travailleurs est-allemands les plus qualifiés « votent avec leurs pieds » et aillent s’installer dans la partie ouest de l’Allemagne (ce que vous écrivez) ; soit admettre la nécessité de transferts financiers durables entre la partie ouest et la partie est de l’Allemagne de manière à soutenir les revenus des ménages est-allemands hors revenus du travail.

Si nous ajoutons, comme vous le faites à juste titre, de prendre en compte les difficultés de la transition industrielle dans les Länder de l’ouest d’ancienne industrialisation, alors le panorama d’ensemble de l’Allemagne actuelle apparaît particulièrement contrasté, marqué par des inégalités de développement très importantes et dont on peut craindre qu’elles ne se résorbent pas.

HvL: In 1989, Eastern Germany had full employment but only one third of the per capita income of Western Germany. Uniting the two Germanies brought double trouble to the East. The mandatory full employment was abolished and the labor productivity was expected to double and triple. The Easterners of 25 years ago tried hard to adapt but many did not succeed. Some lost their jobs, others were downgraded, still others dropped employment and launched a commercial venture.

After a quarter century it is still too early to pass judgment on the new generation coming up which has no memory of working under communism. Schools and universities in the "new" Länder are good. Despite the awful problems of political radicalism among the youth and prevailing xenophobia, chances are that the East will not become the German Mezzogiorno which many feared. The xenophobia is ludicrous since there are hardly any foreigners living in the "new" Länder.

I am more concerned with the situation in the Ruhr, Bremen, Berlin and other depressed areas in western Germany. There, the infrastructure is bad, the education system dubious, and there is no new generation coming up which is clearly distinct from the preceding one. Also, there are troubled ethnic ghettos which defy the law and breed self-isolation.

GC : là aussi, je suis d’accord avec ce constat. Je pense cependant qu’un quart de siècle après le début de l’unification allemande, force est de constater que celle-ci ne s’est pas opérée aussi aisément que cela avait été annoncé. Il conviendrait de réaliser une étude approfondie sur cette question qui risque de resurgir lorsque les Länder les plus riches de l’Allemagne de l’ouest (Baden-Wurtemberg et Bavière) refuseront de continuer de financer des transferts de ressources massifs vers la partie est de l’Allemagne.

HvL: Well, the eastern Länder are funded by a special tax, the Solidaritätszuschlag of 5.5% on top of income and company taxes. The trouble with the "Finanzausgleich", i.e. the effort to balance the revenue of the Länder, does not concern the new Länder but by the poor old ones such as Berlin, Bremen and Saarland. Baden-Wurttemberg was always a net donor but Bavaria -- when it was still an agricultural country -- was for many years a net receiver. The current dispute is less concerned with the Finanzausgleich (a pernennial issue) but with the poor parts of western Germany demanding that the Solidaritätszuschlag should be channeled to them instead of the new Länder which they think don't need the subsidy anymore. 

 Demographic uncertainty

   Considering Germany's record low birth rate it is easy to project frightening perspectives of a shrinking population in the future. That is what some demographers are doing. The message is gladly picked up by popular media such as Der Spiegel.

   Funnily, these democalypse stories running in media all over the country apparently helped to convince many (but not all) Germans that hosting refugees is not only good in itself but necessary for their own future. That is why the current onslaught of refugees from the Middle East and Africa is, on the whole, surprisingly well accepted in Germany.

   The facts, however, are telling a different story. Thanks to immigration, Germany's population is slowly growing.  Since rising numbers of migrants are arriving, the population will continue growing, at least in the short term perspective.

   In the medium and long term, insecurity prevails and does not permit credible projections. Considering the enormous population pressure building up on the other side of the Mediterranean, plus the continuing out-migration from the Balkans and Poland, it seems likely that immigration will continue on a high level, compensating for the low fertility of the current German population.

   In a nutshell: migrants are flocking to Germany because the economy is strong and promising. Because of the arrival of young people eager to achieve their German dream, the economy continues being strong. A win-win situation, at least for the time being.

   It is not carved in stone that German fertility will always remain as low as it is. The expected  breakdown of the state pension scheme will not permit the current young generation to retire in comfort.  Knowing this, young Germans are forced to think of alternative ways of providing for old age. With the currently negative effective interest rates, saving has become a punishing option. In this unfortunate situstion it would not be surprising if young people rediscover the traditional way of safeguarding old age: children.

   In any case, German parties and politicians blissfully ignore the sword of Damocles -- old age poverty -- threatening the young generations. Without exaggerating it can be said that this is the number one problem Germany is facing: the poverty as well as the politicians (including Ms. Merkel) who ignore it (because it will occur after their term of office has ended).

GC : il me semble que l’on devrait se demander pourquoi vivre et travailler dans l’économie la plus prospère d’Europe incite les migrants à venir s’installer en Allemagne alors qu’elle ne pousse pas les jeunes Allemands à avoir des enfants.

Se sentir bien dans son pays, avoir confiance en son avenir, logiquement, devrait inciter les jeunes (Allemands) à avoir des enfants. Ce n’est manifestement pas le cas. Et ce n’est pas l’ « espoir-retraite » mis dans des enfants à naître qui pourra modifier cette posture

Je ne crois pas que l’on puisse considérer les flux migrants entrants comme pouvant compenser l’insuffisant nombre d’Allemands étant nés. A la fois pour des motifs sociologiques et économiques. Certes, l’arrivée en Allemagne de migrants bien formés (dont le coût de l’éducation et de la formation a été payé par leur pays d’origine) est un avantage économique. Mais, à l’inverse, une telle 

migration aggrave les difficultés des pays que les jeunes quittent (la Grèce est un bon exemple).

Sur le plan sociologique, être né en Allemagne de parents allemands n’équivaudra jamais à migrer vers l’Allemagne pour des motifs économiques ou politiques (réfugiés). Et je doute que la population allemande intègre aisément des flux (trop) importants de migrants, même bien formés et de pays proches.

Il est, au final, vraisemblable que la population totale vivant en Allemagne va se contracter, avec les déséquilibres à terme que l’on imagine (notamment sur les retraites).

HvL: The reasons for the low fertility of young Germans are similar to those prevailing in Italy or Japan. Potential parents are aware of the high cost of raising a child if you want to do it correctly. The typical one-child family concentrates all the love and the investment in one high quality child that would have sufficed for two or more children in other countries.  German politicians are aware that the former Eastern Germany with its near-100% nursery coverage made it easy and inexpensive to raise children. But the ruling Christian Democrats take a dim view of such "communist" practices. They'd rather sacrifice procreation than allowing the state to socialize the children (which the East German government intentionally did).

No income growth is likely to resolve this problem. With more demanding jobs requiring more flexibility and more time of potential parents, only a sea change in government attitude and legislation could encourage young couples to have more than one child or two children, at best.

For immigration to fill the gaps, a totally different attitude of the state is again required. The main bottleneck is not how to lodge and process the arrivals. The main problem is education. Immigrants already arriving with pregnant wives (sometimes more than one) are launching an avalanche of children on a school system which is totally unprepared for the assault. Only nurseries and schools can ensure that the wealth of children Germany needs so much is not wasted. Inadequate curricula, lack of teachers conversant in Turkish and Arabic -- the two most critical languages -- and shortage of funds for supplementary language training of non-German speaking children: these are shortcomings preventing Germany from making the best of rapidly rising levels of immigration.

GC : je pense que la question du faible taux de natalité est centralement liée à une forme d’inquiétude, voire de pessimisme envers l’avenir davantage qu’à des considérations de coût immédiat de la charge financière représentée par le ou les enfants. Les jeunes Allemands peuvent se sentir inquiets de conditions d’emploi trop marquées par le court terme. Comment vouloir fonder une famille quand on dispose d’un contrat de travail à durée déterminée ?

HvL:  Agreed. Temporary contracts impede not only family planning but often also buying a home. Germany remains more than its neighbors a country of renters. Maybe even more than atypical forms of work it is legislation which curbs fertility. The new divorce laws are punishing for women. Becoming a single mom means in most cases falling into an abyss of hard work and poverty unless the gentleman involved shows himself  generous beyond his legal obligations. Since getting divorced is easy, young women have become apprehensive and cautious. Although most of them seem to still (or again!) be dreaming of home sweet home and a loving prince, reality is disappointing. Many young men, having been raised in single or double child families, have been pampered and often taught to be egocentric. These men tend to be risk and responsibility averse. Although the traditional marriage bond is again popular in Germany, a pet often replaces the second or even the first child. It is, of course, difficult to find any hard evidence to describe this situation.

Difficult environmental change

   In July 2015, for the first time, sunlight and wind in Germany generated more electric power than all nuclear plants combined (which only became possible because some reactors had recently been shut down). Still, this is a remarkable achievement at the expense of the population which is paying exceedingly high power tariffs subsidizing the renewables, However, the main sources of electricity are still lignite and coal with all their deleterious effects.

   Although the German populace has become very environment-conscious and organic-addicted, progress is slow. German premium automobiles are still, compared to the European competition, gas guzzlers. The Diesel craze continues unabated, and the smog in German cities shows it and violates Brussels regulations. Ruthless profiteering at consumers' expense mars the image of the German food economy, organic or conventional, producer or gastronomy. The only bright aspect is the strength of the discounters which permit Germans to enjoy Europe's lowest food price level, a major contribution to the purchasing power of the euro currency in Germany and the wellbeing of the population. 

GC : la transition écologique en Allemagne, comme en France, est pour l’heure mal préparée. En Allemagne, la part des énergies fossiles (lignite, charbon) reste trop forte. Quant à la France, elle reste très dépendante du nucléaire (les centrales nucléaires françaises commençant, du reste, à devenir âgées). Un accent insuffisant est mis sur les économies d’énergie. Quant au photovoltaïque, il est regrettable que nos industries n’aient pu mieux résister aux importations chinoises subventionnées de panneaux solaires. En Allemagne, le retard d’investissement public n’épargne pas le domaine énergétique.  

HvL:     Agreed.  Some efforts to save energy have even backfired, such as legislation forcing home owners to insulate their walls and roofs. Anyhow, Germans continue to be very environment and resource-conscious. In this respect they sometimes ignore the real size of their country in the global context. Saving water in one of the rainiest countries is surely a good thing in itself but it is not going to help the Sahel,for instance. 

GC : une des marques de la difficulté du tournant énergétique en Allemagne est la situation financière difficile dans laquelle se trouvent les grands producteurs d’énergie allemands, E.ON et RWE. Il est à l’évidence difficile pour l’Allemagne, gros consommateur d’énergie, simultanément, de fermer toutes ses centrales nucléaires et de réduire sa consommation d’énergie fossile. Les économies d’énergie et de ressources en général constituent la voie la plus sûre sur le plan économique comme écologique.

HvL: Germany is certainly trying to save energy and resources. Although primary energy consumption has been reduced since 1990 by some 13%, final energy consumption remained nearly unchanged. This means that energy savings were modest and, at best, balanced the addtional needs of a growing economy. 

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