Economic Recovery and the Labor Market Miracle in Germany: Michael C. Burda Humboldt University Berlin IBM Lecture Milan, October

Transcription

1 Economic Recovery and the Labor Market Miracle in Germany: Lessons for Italy? Michael C. Burda Humboldt University Berlin IBM Lecture Milan, October

2 Preview What is the German Employment Miracle? What are the facts? A bird s eye perspective German labor market performance: an accounting exercise and harder evidence Interpretation: New and old labor market institutions Conclusions 2

3 Labor market reforms and competitiveness? The German labor market miracle is not just about low unemployment, but about long run competitiveness Divergence in unit labor costs in the Eurozone is poison for monetary union Unit labor costs have diverged the most in sheltered, nontraded sectors such as services Germany as Musterknabe or böse Bube 3

4 Unit labor costs, cumulative change, D A SF F B NL I L P E EL IRL 4

5 Unit labor costs, cumulative change, traded vs. nontraded goods, D A SF F B NL I L P E EL IRL 5

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11 Facts Sharper drop in output (GDP) in Germany than in US Employment, unemployment hardly changed Drop in hours worked, but not as much as output Drop in hours/employee Not unusual for German experience, given the drop in GDP except for the drop in labor productivity! 11

12 Decomposing the collapse of output 12

13 Summary of Facts Sharp drop in economic output (GDP) Drop in hours worked Drop in hours/worker, but not extraordinary Drop in hourly productivity (is extraordinary) Wage moderation in the trend, but spike at the time of the crisis and later return to trend, also relative lti to productivity it too t lt? late 13

14 Hours per worker trend broken Actual Hours per worker Predictions based on

15 Employment in Germany 15

16 Sectoral Output and Employment 16

17 Comparison: US 17

18 Sectoral output and employment : US 3,200 2,800 2,400 2,000 1,600 1, Y_M Y_C Y_T Y_F Y_B 45,000 40,000 35,000 30,000 25,000 20, ,000 10,000 5, L_C L_M L_F L_T L_B 18

19 US: Construction US: Manufacturing Actual employment Actual employment LL_C_HAT LL_C LL_M_HAT LL_M 19

20 US: Trade US: FIRE LL_T_HAT LL_T LL_F_HAT LL_F Unlike Germany, US suffered large job losses in manufacturing, as well as in construction and in FIRE (finance, insurance, real estate) 20

21 Potential Explanations Kurzarbeit (short time work) Increasing flexibility of employment, temp agency work Working time accounts (Arbeitszeitkonten) as mechanism for gross wage reduction while creating senior firm liability (accrued wages) Wage and nonwage cost moderation, or direct wage concessions (Arbeitszeitkorridore) 21

22 Short time work (Kurzarbeit) How important was short time work? Answer: Important, but not significantly different from past severe recessions 22

23 Short time (Kurzarbeit) in Germany German unification and the collapse of the East German economy 23

24 Temporary Work kagency How important was the contribution of temporary work agencies (TWA) The cheaper extensive margin? In Germany, temporary work agencies are different from most other countries. Think of temporary agency employment as outsourcing of work to workers under normal contract (most TWA have a permanent contact with their companies) 24

25 Facts Die Zeit,

26 Temporary Work Agency How important was outsourcing of work by way of temporary work agencies? Answer: Important way for firms (esp. in manufacturing) to vary employment without varying their head count (which instead is attributed to business service sector unternehmensnahe Dienstleistung ): Temp work droppeddsharply in the recession, but also rose sharply in the preceding boom Ytit Yet: doesn t appear to matter much for the aggregate outcome Die Zeit,

27 Working Time Accounts How important were flexible work accounts (Arbeitszeitkonten)? Answer: Very Important, in a way significantly different frompast recessions in Germany 27

28 Significant buildup of excess overtime hours and run down after the crisis hit 28

29 Accounting for the reduction in hours per worker 29

30 Accounting for the reduction in hours per worker 30

31 Explanations: Summary Kurzarbeit (short time work): Not exceptional Concession bargaining (Arbeitszeitkorridore): not exceptional Working time accounts (Arbeitszeitkonten) as senior firm liability: bl important as a substitute for government subsidized short time) Wage moderation: Yes, possibly influenced dby the Hartz reforms We can explain60% of the miracle with wage moderation and low employment growth in previous boom the rest looks like regime change 31

32 The role of expectations Theory suggests current and future product wages (and implicitly demand conditions) are important It also suggestsexpectations tti are more important, t if 1) extensive margin adjustment costs are higher and 2) if intensive adjustment costs are lower How important were they? Fact: Business expectations were unusually pessimistic in the years , despite a typical output expansion and positive labor market developments (unemployment falling, employment rising) 32

33 Ifo Index: Future expectations minus current situation

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35 Components of GDP in Germany C X Z G I 35

36 A recipe for beating the crisis? Working Time Accounts Short time work Temporary agency workers 36

37 A recipe for beating the crisis? Working Time Accounts Wage and labor flexibility while preserving social consensus Short time work Temporary agency workers 37

38 Labor costs, productivity and labor share Inthe period , German wages grew initially faster than productivity ( ) then more slowly ( ) especially in the period following German unification 38

39 Labor costs, productivity and labor share Inthe period , German firms restructured significantly while wages were stagnant, so productivity outstripped The wage share is the fraction of total compensation of workers out of total GDP (value added) : WL/PY = (W/P)/(Y/L) > the ratio of hourly compensation to hourly labor productivity 39

40 and if I haven t been politically incorrect already We need to talk about more than just labor markets Labor market reforms may not be a sufficient condition to restore sustained growth in some countries This is true of many economies in southern Europe 40

41 Deregulation and Corruption World Bank: Doing business around the world org/ provides objective measures of business regulations lti for localfirms in 183 economies How easy is it to start a company? How easy is it to get credit? Pay taxes? Enforce contracts? Protect property p rights? etc. How is Italy doing? 41

42 World Bank Indicator: Doing Business ITALY: 87 42

43 Conclusions German competitiveness is as much about adaptation to new conditions as it is low wages and low consumption German output declined as much as in the US but hours worked fell by less, so hourly productivity declined too The drop in total hours is accounted almost fully by hours worked per employee Short time working was not extraordinary, compared with past recessions 43

44 Conclusions Working timeaccounts accounts, temp employment and wage moderation were important, latter possibly accelerated by thehartz reforms Expectations played a large role cautious hiring in the previous upswing can explain 41% of the missing job losses wage moderation perhaps another 20%. The remainder is regime change G h tl i dth i Germans may have permanently increased their normal working hours: A result of the Hartz reforms? 44