Much Ado About Nothing? Recent Labour Market Reforms in Germany - a Preliminary Assessment**
Management Revue › Band 19 Nr. 3, Juli 2008
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Zusammenfassung
The article examines the macroeconomic effects of the recent labour market reforms in Germany. The reforms increased the downward pressure on wages and led to rising income inequality. Many German economists welcomed this effect, because they consider lower wages and higher wage dispersion major prerequisites for stronger employment growth. The theoretical analysis shows that a strategy of wage restraint might make sense in a small open economy, where exports play a dominating role. However, in a large and less open economy the negative effects of wage restraint on domestic demand are likely to outweigh the positive effects of enhanced competitiveness as could be observed in Germany in recent years. A comparison of the most recent two upswings confirms that the labour intensity of growth has not risen since the reforms. At the same time German wage restraint has contributed to increasing trade imbalances in the euro area.
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Much Ado About Nothing? Recent Labour Market Reforms in Germany - a Preliminary Assessment**
1. Introduction
The decisive economic policy issue for the German government in 2003 was how to overcome the deep and persistent economic slump the German economy had dived into after 2001. Low if any growth, surging public deficits and rising unemployment rates then were the dominant economic tendencies. The economic policy debate focused on solutions to all these problems. Since high unemployment had proved very persistent in recent cycles, a major policy change was called for by most German economists. Instead of focusing on stimulating the goods market, the remedy to these problems was sought in the labour market. These developments led to a government reform programme called Agenda 2010.1 The target was to create a more flexible labour market that should stimulate employment and growth.At the end of 2004, the economy took a turn for the better although at the beginning the upturn was rather weak. However, in due course growth accelerated and employment expanded rapidly, too. The question is whether the Agenda 2010 has made a contribution to this positive development. The paper attempts to find a preliminary answer since the upturn was not yet over at the end of 2007 when this paper was completed. In order to derive meaningful results, one has to compare employment performance across business cycles. The present cycle in which reforms have already been implemented is compared to the preceding cycle at the end of the nineties well before the Agenda 2010. Several aspects of labour market performance are analysed.The...Siehe den Gesamtinhalt dieses Dokumentes
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