13 February 2006

EZA 725: Briefing note:

Germany – labour market in transition
Growing pressure for labour market flexibility despite trade union resistance The bounce in German unemployment in Jan06 by 69k was only the second monthly increase since Mar05. Employment numbers, by contrast show signs of bottoming, with publicly sponsored job offers now replaced by private sector vacancies. Whilst former attempts at labour market reforms have proved inefficient, the current tightening of benefit rules and job promotion (Hartz IV) has brought some flexibility. The reform thrust of the new government is on in-wage benefits, reducing the negative impact of effective minimum wages on job creation. Current trade union unrest can be seen as a reaction to a loss of bargaining power through outsourcing and downsizing. Asset conclusions: high wage increases might strengthen ECB resolve for rate hikes, paradoxically doing more harm to consumption than to investment. Themes of the German labour market According to an estimate of the ifo institute in line with the OECD, about 30% of Germany’s economic under performance relative to the rest of the euro area relates to the poor functioning of the job market. EZA will monitor and provide updates on the key themes influencing the German job market in a series of briefing papers over the coming months. This first report is designed to provide an overview of the current situation and highlight the key political and economic themes.

Summary.

Contents
.

Figures
.

© Graham Bishop