The German Upswing Takes a Break
Wirtschaft im Wandel,
2. Sonderausgabe
2007
Abstract
The world economy continues to expand healthily, but risks have increased during summer. The crisis of the housing sector in the US has deepened: A revaluation of mortgage backed assets has triggered turbulences on global financial markets. The institutes expect that financial markets will calm down during the coming months, but that the downswing in the US will slow the pace of the world economy. The economy in the euro area will, in addition, be dampened by the appreciation of the euro. The German economy is, in spite of a restrictive fiscal policy, in a robust upswing. Because wage setting and inflation continues to be moderate, there will be no need for a restrictive monetary policy. Thus the German economy will, due to slower demand from the US and higher costs of financing, lose momentum, but chances are good that the upswing will only take a break. In the coming year private consumption is expected to be the main contributor to growth, because wage incomes will expand strongly. Unemployment will continue to shrink, albeit at a smaller rate than during 2007. Fiscal policy will no longer be restrictive. Economic policy has improved the conditions for growth in Germany; there is, however, still much to do. Public finances have to be consolidated further, but at the same time, public investment has to be strengthened. This can be achieved if public consumptive expenditure growth is limited. The institutes suggest to increase public expenditure by 2% per annum over the cycle in nominal terms; this is, by less than by the trend growth rate of nominal GDP.
The institutes advise against a reversal of the recent labour market reforms. Instead, incentives for taking up jobs should be increased further.
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Business Cycle Update Summer 2007: German Upswing Still Healthy
Wirtschaft im Wandel,
No. 8,
2007
Abstract
In the summer of 2007, the economies of the European Union and Japan continue their upswing, while the USA is still suffering from economic weakness. The expansion of the East Asian economies remains highly dynamic. Compared to the beginning of the year, conditions at the global financial markets have deteriorated slightly: Long-term interest rates have risen considerably; with notably more than half of a percentage point the increase was especially pronounced in the Euro Area. Furthermore, markets have become increasingly volatile. The less favourable conditions at the global financial markets, among other reasons, will cause the upswing in the Euro Area and Japan to slightly slow down. While the USA will not enter a phase of stagnation, the economy will continue to expand at rates below its potential until 2008. In Germany, the economic recovery took a temporary break in the first half of 2007. While special circumstances (first, brought forward purchases in anticipation of the increase in the value added tax and second, the high construction activity because of the end of home owners subsidies) raised considerably economic activity towards the end of 2006, they caused a downturn in demand in the beginning of 2007. After this short dip, the upswing will recommence. Private consumption will be the main driving force, as incomes have increased considerably in the wake of the improved labour markets conditions. The upswing will continue next year, albeit at a slower pace. Higher interest rates, the appreciation of the Euro and the expected rise in labour costs will have some impact. Overall domestic demand will slow down, but only a little, as household consumption increases. GDP will expand by 2.6% and 2.5% in this and next year, respectively. The number of unemployed persons will decline below 3.5 million in 2008.
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East German Economy: Demand Push Stronger than Structural Deficiencies
Wirtschaft im Wandel,
No. 7,
2007
Abstract
In 2006, growth of production was surprisingly strong in Eastern Germany. The structural deficiencies there would have suggested a slower pace. In particular, linkages with national and international business cycles have been underestimated. To a large part, the reason why output grew by 3 per cent did not come from Eastern Germany itself, but from the Old Länder and from abroad. In the New Länder, the strong upward swing in investment activity stimulated the economy. However, owing to a small increase in total income of private households, their purchasing power lagged behind.
The improved ability of East German firms to absorb cyclical impulses from exports and from Germany’s general investment activity proved to be a crucial factor. In particular, the endowment of workplaces with modern production facilities as well as the continued reduction in the disadvantages with respect to cost-competitiveness in the tradable goods sector were beneficial. The labour cost advantage compared to West German competitors increased further while the disadvantage compared to those from Central and Eastern Europe decreased.
Benefiting from these factors, economic activity in Eastern Germany will grow faster than in the Old Länder as long as the upswing in Germany and abroad remains strong. In 2007 and 2008, investments – especially in equipment – and exports will be the driving forces again. For exports, the strongly expanding markets in Central and Eastern Europe as well as in Russia will gain in importance. As income and employment prospects improve, private consumption will support the growth in production. Registered unemployment should decrease below the 1-million threshold.
Manufacturing will remain the primary force of the upswing; its advantages in production costs will not vanish as long as, even in presence of scarcity of skilled labour, salaries and wages do not increase more than in Western Germany. In the wake of robust economic growth, the New Länder will make further progress in catching up with respect to production and income.
Companies will regain support from the banking industry. Yet, investment capital still stems from public funding programmes to a non-negligible extent. In the medium run, access to credit will ease as a result of further improvements in the firms’ net worth position. However, dependency on internal funds remains high and exposes companies to comparatively strong cyclical risks. In an economic downturn, the structural deficiencies of the East German economy will impair economic expansion.
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Institutionelle Defizite und wachsende Spannungen in der Euro-Zone
Hubert Gabrisch
Wirtschaft im Wandel,
No. 7,
2007
Abstract
The introduction of the Euro was certainly a success. Nevertheless, behind this success one may find some increasing asymmetries and imbalances across member countries, which may undermine the stability of the common currency in the long run. Tensions include the paralysis of fiscal policy, increasing divergence in per capita income, a high volatility of real state prices, and diverging unit labour cost developments. The given forms of macroeconomic coordination seem not to be appropriate to mitigate the problems. Obviously, countries can compete with wage policy only after currencies and their exchange rates were abolished, and the use of fiscal policy has been restricted. In particular, Germany and Austria were successful in competitive wage policy, while countries like Spain, Greece, Portugal, Italy, and also France did not yet use the competitiveness channel. Germany was able to reduce its unit labour costs more than other countries by labour market reforms and higher indirect taxes in replacing social taxes. However, the advantage may proof to be temporary only, for other countries will be forced to follow the German example. Given an ECB inflation target of 2 %, more competitive wage policy in the Euro area might jeopardize the stability of the currency through deflation and higher unemployment. It does not wonder that the discussion on other and new forms of macroeconomic coordination revived recently. This debate does not only include the introduction of a central EU budget with anti-cyclical effects, but also forms of direct and indirect coordination of national wage policies. In any case, it would be useful to oblige national wage policies to obey the common interest of the Union.
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Wie hoch ist die Unterbeschäftigung in Ost- und Westdeutschland? Arbeitsplatzausstattung und Arbeitsplatzlücke nach Geschlechtern in Ost- und Westdeutschland
Hans-Ulrich Brautzsch, Johann Fuchs, Cornelia Lang
Wirtschaftspolitische Blätter,
No. 2,
2007
Abstract
The paper investigates the number and structure of available jobs by gender in East and West Germany, the gap between the supply and demand of jobs by gender in both regions and the reasons for the wider “job gap“ in East Germany compared with West Germany. The analysis shows no significant difference in the number of jobs per 1000 persons in working age between East and West Germany. For women, the East German economy offers more jobs. Nevertheless, the gap between labour demand and the supply of jobs is wider in East germany. This is caused not only by problems concerning the production structure, but also by the significantly higher participation rate of women in the labour market. Reasons are the traditional behaviour of East German women and - compared with West germany - the considerably lower household income.
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Too old to change? The link between Age, Wage Differentials and Job Mobility
Lutz Schneider
Sozialer Fortschritt,
No. 56,
2007
Abstract
The reduced job mobility of older employees is well known. As a result, the ageing of the workforce has clear implications for labor turnover in Germany. On the basis of the IAB’s employee survey (Beschaeftigtenstichprobe) (IABS), this article analyses the impact of age on (inter-firm) job mobility. In particular, the study answers the following question: how do wage differentials between an actual and a potential job evolve during employees’ working lives? It is shown that changing jobs is less profitable for older workers than it is for younger ones. However, the analysis also demonstrates that the wage differential between jobs cannot explain the whole mobility advantage of younger employees.
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Die Entwicklung des Arbeitsmarkts in Sachsen-Anhalt
Reiner Haseloff
Wirtschaft im Wandel,
No. 6,
2007
Abstract
Sachsen-Anhalt verzeichnete in den letzten zwei Jahren einen überdurchschnittlichen Rückgang der Arbeitslosigkeit. Die Zahl der Arbeitslosen im ersten Quartal dieses Jahres lag um rund 70 000 Personen bzw. um fast ein Viertel unter der im ersten Quartal 2005. Zwar hat dieser Rückgang viele Gründe, es läßt sich jedoch festhalten, daß allein im vergangenen Jahr über 21 000 zusätzliche sozialversicherungspflichtige Beschäftigungsverhältnisse entstanden sind. Auch die Zahl der arbeitslosen Jugendlichen unter 25 Jahren konnte in Sachsen-Anhalt binnen der letzten zwei Jahre um etwa 37% gesenkt werden – die Jugendarbeitslosenquote ist mit 14,0% nach Thüringen die geringste unter den neuen Ländern.
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Einkommenssicherung, Arbeitsmarktpolitik und Beschäftigung in Ostdeutschland
Herbert S. Buscher
Wirtschaft im Wandel,
No. 6,
2007
Abstract
The paper presents three approaches currently discussed, which might be useful attempts to protect income not to fall below a certain threshold. These concepts are either useful in the case of unemployment or for employees in the low wage sector of the economy. The approaches discussed have recently been published or have been discussed in the public. These are a minimum wage concept, a special variant of subsidized wages as favoured by the German Council of Economic Experts, and finally a workfare approach as suggested by the IZA Bonn. After briefly discussing the estimated employment effects of the various approaches, the paper addresses the question how the East German labour market will be affected by these measures.
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Zeitpotential für berufliche Weiterbildung von Arbeitslosen wenig genutzt
Joachim Wilde, Birgit Schultz
Wirtschaft im Wandel,
No. 5,
2007
Abstract
In general, unemployed persons spend more time on further training than full-time employees. Using data of the latest time use survey (Zeitbudgeterhebung) of the Federal Statistical Office, this study analyzes whether this higher potential of time is being used or not. Furthermore, it describes which types of activities are made use of in particular. Heterogeneity due to different relevant socioeconomic characteristics in the two groups is eliminated by the appliance of a matching procedure.
Findings demonstrate that only around 15 % of the unemployed persons participate in further training activities off the job. In case of the full-time employment just under 40 % of the persons would take part. Relating to the average expenditure of time per week the difference decrease clearly. However, altogether the expenditure of time is not higher during unemployment.
A selection of subsamples points out different results, i.e. in some subsamples the expenditure of time for further training is larger during unemployment. However, in the subsample of low skilled persons these results are mainly caused by activities like hearing radio or watching TV. Thus, it is doubtful whether the higher expenditure of time qualifies for the primary labour market.
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Die Lage der Weltwirtschaft und der deutschen Wirtschaft im Frühjahr 2007
Wirtschaft im Wandel,
1. Sonderausgabe
2007
Abstract
In spring 2007, the global economy remains robust. While growth rates have declined slightly from last year, as business activity in the US has slowed, they continue to reflect an upswing, which by now has held on for a notably long time. Especially the developing and emerging countries have been raising output very fast, due in part to their increasing role in the international division of labour. In the industrialised economies, on the other hand, the current recovery has not been remarkably strong. So far the slowdown in the US economy has not spilled over to other regions and the Euro Area as well as Japan continue to expand at a high pace. Here expansive monetary policy provided a notable support. Buoyant financial markets stimulated the world economy additionally, even though market volatility has increased since the end of February. The US central bank’s current concern with inflationary risks keeps it from loosening its slightly restrictive monetary policy. It will be the second half of the year – when price pressures have eased – until the Fed makes its first rate cut. The ECB, on the other hand, has been preparing financial markets for a further increase in interest rates by summer. In 2007 and 2008 the growth disparities in the industrialised countries will diminish. On one hand, the upswing in the Euro Area will start to moderate, as fiscal policy hampers business activity and monetary policy will not stimulate anymore. On the other hand, the US economy will slowly gain pace from summer onwards; the emerging markets will continue to develop in a highly dynamic fashion. World-GDP in this and next year will likely rise by about 3 ¼ % in 2007, which is still faster than in the average of the last ten years. World trade will rise by 7 ½ % in the coming two years. An oil price of 65 US-Dollar and an exchange rate between the Euro and the US-Dollar of 1.32 were assumed for both years 2007 and 2008. The real estate market in the USA continues to be a risk for...
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