Europe

5 Reasons Germany Isn't Suffering in the 21st Century

Things aren't going nearly so swimmingly in the U.S.

Everything is awesome.

Photographer: FRANCK FIFE/AFP/Getty Images

Don't get excited about the low unemployment rate, or high stock prices, Nicholas Eberstadt of the American Enterprise Institute writes in his latest gloomy screed, "Our Miserable 21st Century." Don't believe the ninnies at the New York Times who said that "Mr. Trump will inherit an economy that is fundamentally solid." No, Eberstadt writes, "things have been going badly wrong in America since the beginning of the 21st century."

As the Times's David Brooks put it in a summing-up of Eberstadt's piece on Tuesday:

For every one American man aged 25 to 55 looking for work, there are three who have dropped out of the labor force. If Americans were working at the same rates they were when this century started, over 10 million more people would have jobs. As Eberstadt puts it, “The plain fact is that 21st-century America has witnessed a dreadful collapse of work.”

This is all true -- even though things have begun looking up since the beginning of 2015 as far as the labor-force participation rate goes. And it's especially striking when you compare it to what has been going on since the beginning of 2000 in the country that I am currently visiting:

Germany Is Still Working

Civilian employment-to-population ratio, ages 25-54

Source: Organization for Economic Cooperation and Development

Note: Y-axis does not go to zero.

In 2000, prime-age Americans were slightly more likely to have jobs than prime-age Germans were. Now they're much less likely to. The gap is biggest among prime-age men: In Germany, 92.5 percent had jobs in 2015; in the U.S., only 84.4 percent did.

Things are, in general, going quite well in Germany right now. The lead story in this morning's Sueddeutsche Zeitung, one of the country's leading newspapers, is headlined "The Government is Swimming in Money." The more-circumspect Frankfurter Allgemeine Zeitung went with "Biggest Surplus Since 1991," 1 but the story was the same: The federal, state and local governments of Germany took in 23.7 billion more euros ($25.1 billion) in 2016 than they spent.

Why has the 21st century been so much better for Germany than the U.S.? Here are some possibilities:

  1. The 1990s were so much better for the U.S. than for Germany. In the latter half of the decade the booming U.S. economy was the envy of the world. Germany, still recovering from some dubious economic decisions made when West and East were reunited in 1990, was the "sick man of Europe." What goes up tends to go down, and vice versa. Or something.
  2. Germany undertook a bunch of tough labor-market reforms in the early 2000s. A lot of those reforms just involved making the Germany labor market more like the U.S. labor market (that is, more flexible) -- so that can't explain the difference -- but there were also improvements to the country's retraining and job-placement institutions.
  3. Germany doesn't convict nearly as many people of crimes, relative to the overall population, as the U.S. does. I actually got this argument from Eberstadt, who wrote last year in his book "Men Without Work":
    A single variable -- having a criminal record -- is a key missing piece in explaining why work rates and LFPRs have collapsed much more dramatically in America than other affluent Western societies over the past two generations.
  4. The euro. Somebody I talked to in Frankfurt called this the "Navarro argument," after President Donald Trump's trade adviser, Peter Navarro. The weakness of other European economies keeps Germany's currency weaker than it would be if the country still used the deutsche mark. As a result, Germany runs bigger trade surpluses than it would otherwise and German manufacturing jobs are preserved. German experts tend to agree with this analysis, and agree that it's not healthy for the rest of Europe and the world. They just don't think Germany can do much about it.
  5. Germany thinks differently about employment than the U.S. does. The lines in the above chart diverged between 2007 and 2010 -- the years of the financial crisis and Great Recession. In the U.S., corporations (and state and local governments) fired millions of workers. In Germany, cooperation among employers, labor unions and the government kept job losses to a minimum. There were pay cuts, and furloughs, and shortened working hours. But when demand from overseas began to come back, German companies and workers were ready to meet it. In general, preserving jobs is a much bigger priority for German employers and politicians than it is in the U.S. At times in the past -- the 1990s, for example -- this focus has seemed misplaced. For the moment, though, it's looking pretty smart.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. That version of the article doesn't appear to be on the paper's website.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE
Comments