"The Paradox of Disappearing European Unemployment"

In the US, official unemployment statistics have been relatively low, yet people report dissatisfaction with the state of the economy. In Europe, something similar has happened. Unemployment has fallen over the last decade, yet there is considerable public dissatisfaction with the situation in labor markets. Tito Boeri tries to explain why, and the reasons seem similar to what has happened in the US. Labor markets are becoming more risky, but wages have not risen enough to compensate workers for the additional risk that they face:

The paradox of disappearing European unemployment, by Tito Boeri, Vox EU: An old European dream has come true, but it looks more and more like a nightmare.

The dream was written on the stone of the Treaty, signed in Rome on March 25, 1957: “The Community shall have as its task (…) to promote throughout the Community (…) a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.”

A European dream came true… In the last ten years European unemployment has fallen to a level not seen for over twenty-five years. There are currently almost 4 million fewer people unemployed in the EU15 than in 1996. Long-term unemployment almost halved: Europe is no longer a place where half of all job seekers have been on the dole for more than twelve months, as was the case in the mid-1990s.

The disappearance of mass unemployment in Europe is not the by-product of falling participation to the labour market; it is the average employment rate in the EU15 that has increased by more than six percent over the last ten years. This is the only area in which Europe is getting closer to the ambitious Lisbon targets. Nor there are more discouraged workers crossing the pourous borders between participation and non-participation to the labour market: there was no increase in the number of non-employed persons who decided to stop searching for another job as they realized that there were no vacancies for them.

It was mainly the countries with initially the largest unemployment rates that succeeded in reducing unemployment the most. The cross-sectional dispersion in unemployment rates across regions of the EU15 (Nuts II) also declined considerably as a result of both less cross country and less within country variation in unemployment rates. This looks like a major step towards achieving the social cohesion pursued by European Governments at least since the 1957 Rome Treaty. European regions are less and less different in terms of labour market conditions.

.... but it is turning into a nightmare European Governments, however, are not capitalizing on these labour market success stories. Governments and coalitions ruling while millions of jobs were created have not been reconfirmed in office. Berlusconi’s 2001-6 Government succeeded in creating 1.3 million jobs in five years, far more than promised in the 2001 electoral campaign. This did not prevent the collapse of his popularity and the defeat at the next elections. Prodi’s 2006-8 Government had a very short life, in spite of creating more than 400,000 jobs in less than 2 years. Aznar lost in 2004 after halving Spanish unemployment and creating almost 5 million jobs during his mandate.

Public opinion polls also find rising dissatisfaction with working conditions, notably in those countries having experienced the strongest unemployment declines.

Why? Why is a European dream turning into a European nightmare?

The simplest explanation one could possibly offer is that the decline in unemployment was a demographic phenomenon, independent of changes in the incidence of unemployment among specific socio-economic groups. Europe is experiencing the ageing of its population and young people typically display higher unemployment rates than older workers. Thus, an ageing Europe is bound to have lower unemployment simply as a result of a changing age distribution of its workforce. However, this simple explanation does not work. It could at most explain one-tenth of the decline in unemployment. The remaining success is due to a fall of unemployment among all age groups. Nor does large-scale immigration, the second most important demographic phenomenon in Europe in the last decade, explain the disappearance of European mass unemployment. If anything, more migration should have involved increasing unemployment rates: the incidence of unemployment is typically higher among migrants than natives in the EU15.

In order to understand what has been going on in Europe and the paradoxical dissatisfaction of its citizens with the disappearance of unemployment, one has to go beyond labour market stocks and look at flows across labour market states. The first thing to notice is that unemployment has been declining in spite of an increase of unemployment inflows rates (inflows over the population at risk, that is working age population minus the unemployed). Put it another way, it was mainly an increase in outflows from unemployment that drove the fall in European unemployment. Secondly, one discovers that there has been an increase in mobility across labour market states, evident from computing mobility indexes over transition matrices mapping flows across the main labour market states. Significantly, the increase in mobility was stronger in the countries experiencing the largest falls in unemployment.

It was reforms! The European labour market landscape looks much different from the sclerotic conditions of the early 1990s. Let us remind what a very influential report commissioned by the G7, the 1994 OECD Jobs Study stated at that time: “In inflexible Europe … the high incidence of long-term unemployment is associated with low inflow rates into unemployment.”

Why did this sea change from sclerotic to a more mobile Europe occur? The driving factor of the increase in labour market flows would seem to have been reforms of employment protection legislation. During the 1990s, major reforms reduced costs of dismissals: there were only four such reforms over the entire EU15 in the 1986-90 period and 16 in the 1996-2000 period. Most of these reforms were marginal in that they were confined to reducing employment protection for new hires, expanding the scope of fixed-term contracts and introducing new and more flexible contractual types (from temporary work agency to job-on-call). This dramatically changed the conditions at entry. In the countries with the strictest provisions concerning the dismissals of permanent workers, the majority of new hires are currently in these new and highly flexible contracts. For example, in Spain nine out of ten transitions from unemployment to employment occur in fixed-term contracts. The increase in unemployment outflows in Europe was largely associated with this new entry channel. The trouble is that, rather than being just a port of entry, these contracts often become a dead-end: the probability of moving from a fixed-term to permanent contract within a year is indeed very low, of the order of one out of 20 or one out of 10. In other words, dual track reforms created long-lasting asymmetries in career paths, concentrating risk on the workers with flexible contracts. On the basis of transition matrices, it is predicted that, in the long-run, up to one third of employment will be in such flexible contracts.

Can Europeans be happier about their new labour market? The dissatisfaction of Europeans with respect to their labour market is ultimately related to a new and apparently less favourable risk-return combination. Labour markets are becoming more risky and this entails a welfare loss for risk-averse workers unless this greater risk is compensated by higher returns. Pressures are mounting everywhere in Europe for greater state involvement in wage setting. These pressures can also be interpreted as a request of compensation for greater labour market risk. Nobody can be fully insulated from it. Even the insiders are somewhat exposed as they form expectations about job loss.

The pressures to go back are strong. But after having reduced state involvement in employment adjustment, it would be a mistake to have governments more involved in wage setting. Setting statutory and industry-specific wage minima, as recently done in Germany, exposes governments to even stronger pressures from national lobbies and leapfrogging games across industries. And there is no reason to reintroduce even the mild forms of income policy that were adopted in several EU countries in preparation for EMU membership. The problem is that centralised wage setting is not an appropriate instrument under the EMU, as macroeconomic shocks are more regional or industry-specific in nature. Thus, national-union-based systems of industrial relations are ill-suited to address new demands for microeconomic adaptability.

The best response that can be offered to the paradoxical concerns of Europeans with respect to lower unemployment is to decentralise even more wage setting and make it more responsive to productivity. Risk is magnified by the fact that any labour market transition involves a large wage loss. Centralized wage agreements tend to reward automatic adjustments of wages to tenure. Moving across jobs or experiencing even a short unemployment spell prevents moving up the wage ladder. A better risk-return combination can be offered by linking wages more closely to idiosyncratic productivity. Insofar as changing jobs involves pairing better matches, wages would increase after changing jobs rather than the other way round.

At the same time, something must be done to tackle the increasing dualism between temporary and permanent jobs in most European labour markets. This dualism is costly for the society at large as it reduces incentives to accumulate human capital: workers with fixed-term contracts are less subject to on-the-job training than the other workers. A sensible policy would be to offer a clear “tenure track” prospect to young workers by completing reforms of employment protection. Currently, there is no long-term prospect after the expiration of a temporary contract. Governments could promote permanent entrance in the permanent labour market in stages, introducing employment protection with gradualism and avoiding the formation of a long-term dual market. Job security provisions, in the form of mandated severance payments, should increase smoothly as workers acquire tenure without large discontinuities.

Waking up from the nightmare There is ultimately a trade-off between employment and productivity growth behind the dissatisfaction of Europeans with low unemployment. Employment growth is occurring at the cost of negative or low growth of labour productivity. This prevents workers from being compensated for their higher risk exposure. The fact of the matter is that Europe is still in the middle of the river of labour market reforms. Pressures to go back are strong. Governments should resist these pressures, as they would have huge employment costs. Increasing both employment and productivity in Europe requires doing just the opposite. Governments should take us on the other side of the river: a tenure track to more stable jobs should be introduced and wage setting should be decentralized to link it more closely to productivity gains.

Comments

[piglet]

Labour markets are becoming more risky and this entails a welfare loss for *risk-averse* workers unless this greater risk is compensated by higher returns. Pressures are mounting everywhere in Europe for greater state involvement in wage setting. These pressures can also be interpreted as a request of compensation for greater labour market risk.

The adjective "risk-averse" is gratuitous. Thewelfare loss due to higher risk is very real for all concerned workers, not becauset hey are "risk-averse" but because their objective working conditions have deteriorated. This is also a good place to point out that high executive pay is usually justified in terms of the alleged high risk these people are taking on. So if executives deserve risk compensation, why are ordinary workers constantly being told that their desire for such compensation is nothing but "selfish" clinging to "privileges"? The truth is of course that de facto, "risk compensation" in our days is reserved for those who are exposed to very little real risk.

"Even the insiders are somewhat exposed as they form expectations about job loss."
One of these gems. How does the author think do these "insiders" [let's not forget what is meant by "insiders" here: workers who can be fired with one month's notice, as opposed to those who can be fired on the spot] "form expectations about job loss"? Maybe through reading in the paper about mass layoffs at least once a month? Oh no, that couldn't be. It's really all a case of false consciousness. Europeans, just like Americans, don't understand how good the economy really is. It's time somebody like Tito Boeri tells them.

[hari]

I cannot compare current EU labour market for professionals based on my professional life more than two decades ago.

The duality of *temporary* and *permanent* workers are now the system. Here, in Holland, almost all young professionals are NOT permanently employed, but prefer the ability to navigate the flexible labour market - until they find something (permanently) suitable. I see that among our neighbours and others...They are happy to not work whole week. They average about four days a week (not more). This also allows them social mobility to hook on to a second job!

It's amazing to see how they manage and scramble with the ups and downs of short-term contracts....While employment is now spread across gender (actually more women are in work today!) and age group. Their social security is guaranteed even when unemployed (cf. American Labour Market).

However, IMO, govs rate of investment in R & D and sectoral specialization by SMEs (eg. Germany) is not competitive.

Productivity will of course depend from sector to sector and how govs are able to focus labour policy on re-training and upgrading labour force.

In case of Germany, across the boarder here, it's Federal Law that Emplyoyers must provide training programmes for school leavers and salary. And it plays into their domestic party politics with Social Democrats demanding more intake of *trainees* than (may be) vacancies available....

[hari]

I cannot compare current EU labour market for professionals based on my professional life more than two decades ago.

The duality of *temporary* and *permanent* workers are now the system. Here, in Holland, almost all young professionals are NOT permanently employed, but prefer the ability to navigate the flexible labour market - until they find something (permanently) suitable. I see that among our neighbours and others...They are happy to not work whole week. They average about four days a week (not more). This also allows them social mobility to hook on to a second job!

It's amazing to see how they manage and scramble with the ups and downs of short-term contracts....While employment is now spread across gender (actually more women are in work today!) and age group. Their social security is guaranteed even when unemployed (cf. American Labour Market).

However, IMO, govs rate of investment in R & D and sectoral specialization by SMEs (eg. Germany) is not competitive.

Productivity will of course depend from sector to sector and how govs are able to focus labour policy on re-training and upgrading labour force.

In case of Germany, across the boarder here, it's Federal Law that Emplyoyers must provide training programmes for school leavers and salary. And it plays into their domestic party politics with Social Democrats demanding more intake of *trainees* than (may be) vacancies available....

[anne]

Study of European employment patterns is sorely neeed, but the stuy must bre as disciplined as this paper is undisciplined. This is no more than a research proposal that needs significant narrowing and a coherently framed thesis. There are several interesting and hopeful useful ideas, nothing more.

[anne]

Corrected:

"Study of European employment patterns is sorely neeed, but the study must be as disciplined as this paper is undisciplined."

What is important is that European voters able to limit the extent of labor market re-balancing to management interests, and that has been the case.

[BJ Feng]

Yes, there is a tradeoff between labor security and employment, Europeans want both, but have to be taught that as one increases the other decreases like a see saw. It should be to no surprise as they move toward a more American type labor market, unemployment decreases and more jobs are created.

Executives are compensated well because of the monumental decisions they have to make, and the likelihood of dismissal if they are wrong. What they decide effects the entire company all the way down to the lowest worker. Sprint's foolish merger with Nextel wiped out billions in equity and put the company at risk of bankruptcy. The genius at McDonalds who decided to offer salads and separate the menu into a value section and a premium section created billions in value and assured the continued employment of those below him.

Meanwhile, the guy who makes the salad will not cost the company billions if he screws up and forgets the tomatoes, or gives the customer the wrong type of salad dressing.

[BJ Feng]

What's important is that workers negotiate the best deals they can and jump ship if they are offered a better wage or better opportunities elsewhere. If they have any talent or worth, a company will do a surprising amount to keep him, my friend received a phone call from the CFO asking him to stay (he didn't). They should ask for more money and more options and negotiate at reviews. Again, people who are valuable have no qualms about expressing dissatisfaction at the paltry 15% raise or 25% bonus on top of the raise.

Unfortunately, people in jobs that require little or no talent have very little leverage and should try to gain the skills necessary to get a better job that will allow them to show their value to the company.

[EricC]

"The best response that can be offered to the paradoxical concerns of Europeans with respect to lower unemployment is to decentralise even more wage setting and make it more responsive to productivity. "

But productivity in Europe has been strong for some time-- better than in the US, especially when accounting for the significantly more hours that US workers toil. Isn't that just a backdoor for raising the bar to simply intimidate and squeeze more profit from workers? I've seen it in my own company and highly capable people have left because they felt the company no longer treated them like a responsible adult. Some baselines for performance are necessary and expected. But caution to those companies who think workers need nanny measures of ultimately arbitrary "idiosyncratic" productivity goals. Treat your workers like children and they will behave like children or, perhaps worse, they will walk out the door with a good chunk of intellectual capital.

[german_reader]

BJ Feng

"Yes, there is a tradeoff between labor security and employment, Europeans want both, but have to be taught that as one increases the other decreases like a see saw. It should be to no surprise as they move toward a more American type labor market, unemployment decreases and more jobs are created."

That's complete nonsense the employment level in the US is neither exceptional nor unique. Many European countries have similar employment levels. What matters most is the general economic development. During periods of economic expansion employment increases , during periods of economic slow down - as we currently can see in the US and perhaps soon elsewhere - employment falls. This effect is far stronger than any labor market policy.

What distinguishes the U.S. from most of Europe is that it has kept its economy running over the last decade ( perhaps the last two or three decades ) by debt levels unseen in history before. You will be surprised how low the U.S. labor market can fall if the coming recession stays for a longer period despite all government bail-outs and tax cuts. Many American workers pay a high price for an employment level other countries have reached with much fairer and solid policies ( if the U.S. had the same employment level as Switzerland it would have around 160 million workers instead of the 146 million it has now ).

And labor market liberalizations often have exact the opposite effect of what they were designed to do. They destroy employment instead of creating it. In Germany for example the number of paid employees is nearly exactly the same ( 35.3 million ) as during the last economic recovery 2000/2001, before the last, most agressive round of "reforms". But the number of full-time jobs is around 1.2 million lower. Germany has now the largest low sector in Western Europe ( 22% of all paid employment, U.S. 25% ). There are millions of people trapped in low paying temporary employment, marginal part-time jobs or other forms of precarious employment. The middle class is shrinking, poverty shot up from 10% in 2000 to 18% in 2006 ( Defined as 60% of median disposable income, not comparable to the U.S. definition. The OECD calculates the U.S. poverty rate under a similar definition at 24% ) and this could be the first economic recovery in Germany's post war history where wages see no real gains. There are many losers and very few winners ( company owners, high managers and large capital owners ). And this situation is aggravated by extensive supply-side tax cuts for companies, investment funds or capital holders, while the broader population had to shoulder new tax burdens through the abolishment of several tax privileges, the raise of the VAT tax or new co-payments to health care and other social services.

The reason so many people her in Germany/Europe are opposed to "reforms" is quite simple. In most cases they have nothing to win, but a lot to lose. It's a simple economic calculation. Very rational and very entrepreneur like.

And no, "globalisation" is not the main force behind the job losses - at least not here in Germany. Job losses in manufacturing explain less than one fourth of all ( full-time ) job losses since 2000 ( it was more during the nineties ). And during the last year manufacturing has created 130,000 new jobs here Germany, equalising more than one third of the preceding losses.

The main reasons are further job cuts in the public sector ( public employment in Germany is one of the lowest in the OECD far lower than in the U.S., the U.K. or Canada ), exaggerated wage restraint ( may make sense for a while in manufacturing, but not as a strategy for the whole economy, especially not if you run the highest trade surplus in the world ) and incompetent tax policies which have further damaged domestic demand. The labor market "reforms" had no or in the best case a negative effect. And the aggressive mercantilist strategy ( "beggar your neighbor" ) of our economic establishment is going to damage the economies of many of our EU partners. France or Italy for example would have a balanced foreign trade account without their high deficits with Germany ( despite China ).

If Americans want to know what has happened to their society over the last decades they should look at Germany. If you make similar policies you get similar results: rising poverty, a shrinking middle class with stagnant incomes and rising inequality with exploding incomes at the top. Globalisation ( or better the way it's currently organized ) is not the main culprit. It's only a single element in a long row of supply-side policies which serve the needs of capital owners and corporations and cause a constant redistribution of income and wealth from the middle and the bottom to the top. Finding a better and fairer way ( for both citizens in rich and in poor nations ) to organize globalization would be only one element among others in reversing the negative trends of the last two or three decades.

[Lafayette]

Tower of Babel

Article: European regions are less and less different in terms of labour market conditions.

I wouldn't take this for any miracle cure for European unemployment diminishing. It dismisses far to cavalierly the fact that European immobility is still a major resistance to the allocation of Labor resources in the EU. And, this is for a simple reason, namely, language barriers.

Only about 2% of students graduating from universities go abroad to work in a foreign language, typically English, even if the country in which they find work is not Ireland or the UK. Second, most of the rest of the transfers are in manual labor jobs, typically construction. The Poles are leaving Spain, for instance, now that Spanish construction has begun to dry up.

And, a great many unskilled labor jobs are being taken by transient Pakistanis, Afghans and Iranians who are illegal migrants. Most of these tend to go home after a while -- besides they never show up in the Labor statistics.

Except in France where immigration is like a soccer game .... as soon as you enter upon French soil (Goal!) many people think you deserve a job and therefore working papers.

Europe suffers from the same immigration problems as the US. Wild immigration across borders that should be secure. Without such immigration and forcing employable people on welfare to take available unskilled jobs (which they often refuse for a variety of reasons), could reduce unemployment by around another point.

[reason]

piglet
The adjective "risk-averse" is gratuitous.

I agree but for a different reason. It is COSTLY to change jobs. Not just a psychological cost, a money cost. (I wonder how many of the people writing these sort of articles have actually been out of work.) It is the loading of these adjustment costs onto the work force that is "missed" change that is causing so much "puzzling" dissatisfaction.

[mark ii]

'Governments should take us on the other side of the river...'

This is another of those myths like the 'trickle down' theory from the 80's. There's no river to get to the other side of -- it's an ocean of deteriorating wages and working conditions for workers to drown in.

I have no idea what the solution is. But the core of the problem (imho) was mentioned by BW (?) in another threat some while ago: the means of production are just too efficient, there aren't enough decent jobs to go around (in case you were wondering my ambition is to be a reality tv star).

[Bib]

>> There's no river to get to the other side of -- it's an ocean of deteriorating wages and working conditions for workers to drown in.

I have no idea what the solution is.

____________________________

I do.

Since there is nothing new here all we have to do is the same thing we did last time we built a strong middle-class from the 40's to the mid 70's.

And stop doing the stupid shi* we have been doing since raygun.

But you do need a population with a bit of courage.

[Bob]

me above

[piglet]

I love BJ Feng:

"Executives are compensated well because of the monumental decisions they have to make, and the likelihood of dismissal if they are wrong. What they decide effects the entire company all the way down to the lowest worker. Sprint's foolish merger with Nextel wiped out billions in equity and put the company at risk of bankruptcy... Meanwhile, the guy who makes the salad will not cost the company billions if he screws up and forgets the tomatoes, or gives the customer the wrong type of salad dressing."

Now that explains why the guy who faces the "likelihood of dismissal" because he cost the company billions gets compensated with millions more, on top of an already high compensation that already includes a generous risk premium, whereas the guy who makes the salad well every day gets paid minimum wage and can still be fired on the spot without any kind of compensation. Makes sense, totally. It does take special talent to screw up billions of dollars, that I have to concede.

[reason]

Besides which, I sort of wonder why one guy is making such big decisions alone. Do we expect that he has special psychic powers? I thought the wonder of the market was that it gathered information from lots of different sources.

[piglet]

german_reader: If Americans want to know what has happened to their society over the last decades they should look at Germany. If you make similar policies you get similar results: rising poverty, a shrinking middle class with stagnant incomes and rising inequality with exploding incomes at the top.

What surprises me is how unabashed the German elites still follow the neoliberal bandwagon. Every "reform" they propose is a rehash of the same concepts that have been tried, and failed, for 30 years now. Incredibly, they are still committed to railway privatization, having long forgotten the disastrous British experience.

Can you point to statistics about public sector employment?

[hari]

German public sector employment has declined.

Deutsche Bahn - German Railway - will also be privatized but may be NOT the infrastructure (lesson learnt from UK).

[paine]

this article's Rx
is a brutally trap filled fantasy

tenure tracks ?

decentralization ?

its a dismal path
strewn with broken board room promises
of reciprocity
give us flexibility
we'll increase your productivity
and .....your wages

haven't the jobbled vanguard
the wagery of north america
already traversed these highways
the past 30 years ????

the social win win link gets busted

just as concertation led
to reduced union powerby
swamping the militant minority
by milding out thru melding in
the wage bargaining system
so
this apparently opposite move
leading back from concertation
to localized atomization
baragaining
is a logical
utterly coherent follow up step
in a process
toward ever higher corporate returns

both directions
were ultimately politically certified
because
they had profit plus potential outcomes
for the MNC 's

hey !
why assume any other intended outcome
when the faustian insatiability
of the corporate profit max quest
trumps all else

[paine]

"the means of production are just too efficient, there aren't enough decent jobs to go around"

mark II
after writing up so much sense
to end with such utter nonsense

why baby why ???

as time passes
the growth in productivity
in one household product sector
leads on to increased final demand
for the next higher wish sector
in an unending
spiral up
of wants and desires

the socialization of consumption is barely under way
we still can eat out
the the second half of our meals
farm out the rest of our routine
care giving

btw at first
these may prove quite hard to mechanize

-----

"in case you were wondering
my ambition is to be a reality tv star"

talk about
the growing relative scarcity
of positional jobs
as society gets bigger and more consolidated
is not new at all now is it ...

and
hardly the real issue either

a plentiful supply
of decent paying
decent houring
low skill requiring wage jobs
is not limited by
technical progress
its created by
technical progress

[Lafayette]

A legalized rip-off

bjf: What they decide effects the entire company all the way down to the lowest worker ... Meanwhile, the guy who makes the salad will not cost the company billions if he screws up and forgets the tomatoes, or gives the customer the wrong type of salad dressing.

Why are focus uniquely on Top Management's decision-making abilities to justify exorbitant executive pay? Having made their decisions, if they are not implemented, they are meaningless.

Picking the extremes in an organization to justify executive compensation is ludicrous. The success of a company is more than designing a plan, but also executing it. The operations of a company, that include thousands upon thousands of small decisions every day, also contribute to the company's success and its profitability.

And, if the Top Executive can share in the profits, that solely they and their Board decide upon quantitatively, why not share those benefits all the way down the line? Because, aside from the executive class, the rest are just poor peons? The business would not operate without the peons, Feng seems to forget.

Obviously, Feng's plutocrat system of values are heavily weighted at the top. That attitude is not only myopic but unjust. Still, it is largely held by those at the top in today's corporations.

The current system of corporate governance allows them to decide how much of the profit pie the will obtain and when they get it. And, the owners, those who hold their stock, have no say in the matter whatsoever. The voting process is wholly tipped in favor of the incumbent management, so they need not ever fear owner interference in their decisions.

Corporate profit-sharing of that kind is a legalized rip-off.

[lonesome_moderate]

Is it true that the huge increase in the value of the Euro has not been reflected in the prices that Europeans pay? To believe the news reports that I've heard, the same box of detergent or roll of toilet paper now costs 20 or 30% more when priced in Euros. That would certainly make me angry, were I living over there.

[Andrew]

lonesome_moderate,

The 20% increase in detergent price is a function of the VAT, which replaces income tax to a large extent in the EU.

That said, the adoption of the Euro has severely undermined the ability of European parliamentary bodies to use fiscal and monetary policy to moderate business cycles, so the economic flexibility falls squarely on the shoulders of labor. This shifting of risk was Mundell's intention from the get-go for his Nobel prize winning notion. I have an expletive or two for that gentleman.

[german_reader]

@piglet

"Can you point to statistics about public sector employment?"

I recommend you to search on the statistics websites of the different countries. That's the way I normally try to find the actual numbers.

Finding valid, internationally comparable statistics about public sector employment is a bit trickery. Most statistics are outdated and the definition of public employment differs very much. And in most cases they count only employment in the public service. My definition is broader and includes employment in public owned companies or any other form of permanent regular public employment.

In Germany for example there are 4.6 million employees in the public service and another 0.9 million in so called independent public units ( public companies such as Deutsche Bahn, public clinics with independent accounting etc. ). The total is 5.5 million ( 2006, includes military, now lower again ). 13.9% of all employment ( 39.7 million ) or 15.5% of paid employment ( 35.3 million ).

The U.S. actually counts 22.8 million in March 2008 as government employed ( not seasonally adjusted ).

http://www.bls.gov/news.release/empsit.t14.htm

But this does not include personnel on active military duty. And here the problem begins. The military sector in the U.S. seems to be a blackbox with unknown dimensions. Wikipedia writes that in April 2007 1.4267 million people were on active military duty:

http://en.wikipedia.org/wiki/Military_of_the_United_States

The national account statistics of the U.S. calculate with an government employment of 2.3-2.4 million people in the military sector. But I'am not sure if they count jobs or persons. And than there is an unknown number of military contractors and other private firms in the defense related private sector which are de facto government paid. Stockholm based SIPRI institute counts ( based on U.S. government statistics ) 3.4 million employed in defense related industries in the U.S. ( Germany 0.08 million ). The grey zone between independent private employment and government dependent employment in the military-industrial complex is enormous and I think that economists in general ignore or underestimate the stabilizing effects of the giant defense expenditures in the U.S. on the U.S. labor market. Without defense related employment, private sector paid employment in Germany and the U.S. is nearly identical ( and private sector self-employment in Germany is much higher ).

But even if you calculate with the lowest numbers ( 22.8 million civilian, 1.42 million military ) regular government employment in the U.S. is higher than in Germany ( 16.4% of total employment, 17.5% of paid employment ). Population adjusted Germany would have 6.6 million employees in the public sector with a similar employment structure as the U.S. instead of the 5.5 million it has.

Public sector employment in the U.K. in 2007 was 5.8 million. That's 20% of all employment ( 29 million ) or 23.1% of paid employment ( 25.1 million ). The relative population adjusted number for Germany would be 7.9 million.

( link is for 2005 )

http://www.statistics.gov.uk/CCI/nugget.asp?ID=1292&Pos=1&ColRank=1&Rank=374

Canada counts 3.4 million in March 2008 as government employed.

http://www.statcan.ca/english/Subjects/Labour/LFS/lfs-en.htm

19.9% of all employment ( 17.1 million ) or 23.5% of paid employment ( 14.5 million ). Population adjusted correspondent number for Germany would be 8.4 million.

France has 3.1 million employees in the public service alone, but the the total public employment seems to be around 5 million ( 19.8% of all employment - 25.2 million, 21.7% of paid employment - 23 million ). As a share of employment it's higher than in the U.S., but population adjusted it's nearly identical ( Lafayette!).

In Scandinavian countries public employment is around 30% of all employment, in Australia around 16%, the Netherlands, Austria or Switzerland seem to have only slightly higher public employment than Germany. Only Japan ( and may be South-Korea ), the country with the highest public debt in the world, has significantly lower official public employment ( seems to be around 7% ).

"What surprises me is how unabashed the German elites still follow the neoliberal bandwagon. Every "reform" they propose is a rehash of the same concepts that have been tried, and failed, for 30 years now. Incredibly, they are still committed to railway privatization, having long forgotten the disastrous British experience."

Who says that politicians always act in the best interest of the people. Many of our great "reformers" appear after their political career as lobbyists or consultants for private companies that have profited from the "reforms". And especially in the conservative parties CDU/CSU and FDP many politicians are directly or indirectly on the pay-rolls of the economic establishment. Hidden corruption seems to be an ever growing problem in the German political system ( and not only there ). What lacks are more effective ways of direct democratic control ( like referendums ) and clearer rules for politicians who start a second career in the business sector after their political life. It shouldn't be allowed that they work for companies which had an advantage from political decisions they made during their political career ( for example former chancellor Schroeder - Gazprom ).

A typical example is the discussed privatization of Deutsche Bundesbahn. A clear majority of the population ( around 70% ) is against it. The examples from other countries are not very encouraging. And there are better and cheaper ways to finance the capital for necessary new infra-structure ( for example public bonds ). The only ones who would with high security have an advantage from a privatization would be Deutsche Bahn CEO Hartmut Mehdorn, he could satisfy his personal vanity as leader of a new "world" company, and private investors which would get a fantastic deal for free ( total assets of Deutsche Bahn are 170 billion, a complete privatization would bring perhaps 17 billion on the stock market - perfect deal for whom? ). Many of the politicians currently involved in the privatization negotiations would probably come back later as highly paid "consultants" for private investors.

My impression is that the political class in Germany develops more and more a corral mentality. The failures of many "reforms" are obvious. There are too many losers and only a few winners. The long-term effects of some "reforms" threaten to destabilize the whole country ( for example the pension-"reforms" ). And our politicians react like little children. If they don't like us or what we've done, we ignore them. They are obviously unable to bear constructive criticism or admit mistakes ( especially the SPD is in a more and more a tragicomic position ).

@hari

the job cuts in the public sector since 1995 I've mentioned several times in ealier comments ( 1 million full-time jobs ) are without privatization. These are only direct job cuts. And most of them have not been replaced by adequate jobs in the private sector. If you include privatizations ( Deutsche Telekom, Deutsche Post ... ) total public job cuts since re-unification are more in the range of 2-2.5 million.

[Andrew]

german_reader,

OECDstat was trying to normalize unemployment rates with SUR measurements recently, but I just noticed they have revamped their database and I can't find the Standardized Unemployment Rates any longer. If you can find them, it is a fairly reliable way to do cross country comparisons on unemployment.

[Lafayette]

g-r: Finding valid, internationally comparable statistics about public sector employment is a bit trickery.

Go the US BLS, who make a decent effort of massaging international unemployment statistics to a common reference. The OECD does the same.

It's not rocket-science and the numbers are comparable for practical purposes. Of course, purists will have a field day arguing how such is not the case ... but, who cares?

The differences are meaningless given that no particular country system is infallible in gathering completely all data in the matter of unemployment. Arguing about "data validity'" is often an exercise in intellectual masturbation. I.e., sterile.

[Cyrille]

Lonesome Moderate: "Is it true that the huge increase in the value of the Euro has not been reflected in the prices that Europeans pay?"

Yes, it's apparently true (there was an article in Le Monde about that not long ago, and I certainly noticed it). It doesn't thrill us indeed.

It's not just VAT, not by any stretch of the imagination. Besides, VAT is not 0 in USA either.
For example, the price of the same tennis racquet is slightly fewer dollars than euros. That despite the fact that you get 1.57$ with one euro.

[Lafayette]

lm: Is it true that the huge increase in the value of the Euro has not been reflected in the prices that Europeans pay?

To some extent, yes. Petroleum is sold in dollars, so the euro goes further in buying crude. It has had a beneficial effect in that, though petrol (gas) prices at the pump have increased dramatically, its fullest impact has, supposedly, not been felt.

Other such import costs may have had the same conditioning, that is they are lower in price and therefore the EU is probably going to have some Current Account problems.

Especially due to the fact that the reverse is true as regards export prices. EU products are more expensive abroad, unless their producers reduce markup margins. And, Americans are just not showing up any longer in the numbers typical of the past. Fewer Yanks are admiring the Hall of Mirrors in the Versailles palace.

And, frankly, the UK, even if it has not adopted the euro, is still pretty damn expensive. It has been for over a decade, and that has nothing to do with the euro and everything to do with the pound. The Brits decided long ago to maintain the dollar:pound parity, and so (with the sinking dollar) they are paying the price of that policy. Which means British exports intra-EU should be cheaper. Unfortunately, since they no longer produce consumer-visible products, it is not very noticeable. But, their hi-tech stuff is selling well, according to reports.

[hari]

EU is UKs largest trading partner (only China does better) right now. I've written a lot of nonsense about why UK will *never* adopt Euro or our legal, Shengen and tax system. It all comes down to their cultural insularity - as an island - and compelling pound sterling nationalism (from days of British Raj!).

However another Soro *put* might unleasch a re-thinking!

[BJ Feng]

Joining the Euro also means that they will have to give up the freedom to set monetary policy, that's pretty big. Furthermore, they'd be exposed to the fiscal decisions of other countries like Italy and France, who don't seem to have any desire to restrict budget deficits to the agreed 2% limit. As the EU currency area gets larger, it becomes more unwieldy. The benefits of adopting the Euro don't seem to outweigh what has to be given up. I think it makes sense for small and emerging countries to adopt the Euro, but an already large nation doesn't have many reasons to join at this point.

[german_reader]

@Lafayette, Andrew

I was not talking about unemployment numbers, I was talking about public sector employment, that's pretty different. And most statistics I know from the OECD, BLS or EU count only the public service, but that's only a part of regular public employment and most statistics are from 2000 and before and especially here in Germany pubic employment has rapidly declined. In other words the international statistics are no longer valid. Even with the old numbers public employment in Germany is very low by international standards.

Obviously it's kind of "rocket science" for some people to read my comments.

Besides "standardized" unemployment numbers are often not comparable, because they don't consider factors that lay outside the labor market and lower the unemployment numbers ( In the US the extremly high imprisonment, in other countries early retirement, long-term sick or a high number of illegal workers ). Germany for example counts - despite an identical or lower working age population - on average 1.5%-2% of the population more in its labor market statistics than the US or the UK. In has neither the high number of long-term sick and early-retirees of the UK nor the extreme imprisonment of the US. If Germany would count exactly the same share of the population as the US or the UK unemployment in Germany would currently be at 5.4% and in WestGermany at 3.6%. On the other hand the US and the UK would have an unemployment rate of 8-10% if they'd count as much people as Germany. And that's the "standardized" rate not the German national rate. ( No, Lafayette I don't see why it's always the US which should set the standards ).

[piglet]

"Is it true that the huge increase in the value of the Euro has not been reflected in the prices that Europeans pay?"

You mean the prices of imported goods? It seems to me that electronic goods right now are cheaper to buy in the US, and this is not fully explained by lower VAT. I suspect exporters are reluctant to pass the lower purchasing power of the dollar fully on to US consumers.

[anne]

German Reader, thank you so much.

The comments you have made are more important and helpful to me than the essay in having more focus. The comparison of growth patterns in western Europe and America is most important but difficult to manage because we allow political slants to mask what we find.

[Lafayette]

g-r: If Germany would count exactly the same share of the population as the US or the UK unemployment in Germany would currently be at 5.4% and in WestGermany at 3.6%.

Do you feel better now, having convinced yourself that the unemployment rate in Germany is lower than the US? Good.

A bit fabricated, that argument, don't you think?. Besides, it is useless -- as I have tried to say many, many times -- to compare the US and any one country in the EU. Comparisons should be made on an EU vs. US basis, to obtain any benefit.

On just about any basis that counts (exchange rate, FDI, cost of doing business, regulatory hindrance, per capita consumer expenditure, GDP per capita), the US is in a far better position than the EU. Why?

Because the effort at integrating the EU, though well on its way, has not yet seen the advantages that were either forseen or hoped for. Why?

Because the EU is still a cacophony of 27 member states, each pulling their own way. The common purpose or destiny of an EU having withered along with economic prospects over the past ten years. It's pretty much a free-for-all at the moment.

Of course, this predicament will inevitably change. The EU has every reason to become a major economic pole and throw its weight around. But, that's still, nonetheless, a bit in the future.

And, I maintain, it's a better place to live.

[blue]

German reader, would you mind posting a good reference/paper for your argument on "standardized" unemployment numbers and why they´re not comparable? I´d like to read more about this in detail.

thx!

[Lafayette]

Dollops of the dole

blue: I´d like to read more about this in detail.

You are courageous.

The argument inferring "unstandardized employment numbers" (and its corollary "therefore incomparable") is typically articulated in Europe wherever countries are embarrassed by employment figures.

For instance, France has had unemployment rates above 6% for the past quarter of a century (yep, since the mid-1980s). Of this period, about a decade has been spent above 10%. Germany has also reached such heights upon occasion.

So, one can imagine how such hallucinatory numbers send some pundits into orbit. And, they come down with just the sort of argument posited, that is, "don't believe the numbers because they are not "standardized!"

As if, at any unemployment rate either above 5% or in double digits, standardization would make a tremendous difference in the total.

At 5% unemployment, in most anglo-saxon countries, political heads would roll. Not in Europe, where the word "social assistance" has reached new definitional limits. The dole has been wholly exaggerated by numerous European countries and it effectively incarcerates people into an unending lifestyle, rather than prompting them to move out and upwards. The phenomenon of entire generations of a family knowing the dole are not uncommon.

Of course, dollops of welfare have helped guaranty many a politician their career in these same countries. And, that is true of both the Right and the Left.

What is curious about Germany in particular, is that it persists in thinking it has been Absolutely Right in its Unemployment Policy. It has some of the highest wage-rates in Europe (if not THE highest in manufacturing), it has dislocated countless jobs eastward to ex-communist countries, whilst maintaining generous assistance to its unemployed nationals.

After the collapse of the Berlin wall and the demise of the communist regime in East Germany, the West Germans had the opportunity to attract FDI to Eastern Germany. But it foolishly accepted the East German currency as equivalent to the West German currency, thereby effectively assuring that few companies would even attempt to set up shop there. So, they went next door to Poland, the Czech Republic, Slovakia, etc. for equivalent skilled workers at lower wage rates.

Western Europe's belief in Social Expenditure is well-founded as national policy. But, it has often been exaggerated as well.

[hari]

This reminds me - once again - about my old colleagues study on "How to Lie with Statistics".

At OECD we used to (sort of) standardize national statistics when doing comparative sectoral or national reports for publication. All figs available at OECD, as I've repeated before, are supplied by memebr countries thru their Treasuries. I don't know what the state of the art is today when OECD publishes its comparative sectoral analysis.

At EuroStat (Lux), the source of official EU Stats, there are still problems of convergence and stadardization. I've no idea if they've reconciled stats from Eastern Europe with Western Europe. However, for EU budget to work and subsidies to be payed out, EuroStats must be the last resort for decision-makers.

[german_reader]

@Lafayette

my intention was not U.S. bashing ( O.K., a bit re-bashing would be justified after all these years of Europe bashing ) or to show how great Germany or Europe is or that we don't have problems with unemployment or employment structures. We have and it would be insincere to deny that. De facto the real number of unemployed in Germany is closer to 6 million, if you count all persons in qualifying ( not counted as part of the labor force ) , labor market measures, people on unemployment benefits, but not officially counted as unemployed ( single parents with little children, over 58 years old, temporary ill ...) etc. than the 3.7 million currently reported.

But that's not the point. My intention was to show that if you use similar methodologies and consider external factors such as imprisonment, early-retirement, long-term sickness and so on, the numbers don't look that much different. The employment-to-population ratio in Germany is very similar to the U.S., the U.K. or Australia and at least the two last have a similar share of part-time workers ( more than 85% of part-timers in Germany are women, it's mainly a socio-cultural choice ).

Besides the official number of unemployed in Germany are REGISTERED unemployed. You can count them down to the last person ( and the official rate includes 20-25% under-employed part-timers ). In the U.S. the official number of unemployed is based on a household survey in 60,000 households in a fast growing population of 300 million ( and it doesn't include under-employed part-timers ). That's nothing more than a rough estimation.

And perhaps more important: What counts if you want to get a realistic impression of the the labor market is not only the number of employed or unemployed. What counts is also the structure of employment. As I've mentioned several times before the number of paid full-time jobs in Germany is now between 1-2 million lower than before Hartz-IV reforms and the quality of jobs in general is eroding, while the total number of paid employees is not higher than before ( adjusted for the economic cycle ). De facto the "reforms" had no measurable positive effect and there are good reasons to believe that they've done more damage than benefits.

I personally believe that the whole idea behind the Hartz-IV reforms was wrong and that it was based on a completely one-sided and false analysis. Most economists and other so called experts are obviously unable to take an objective and unbiased look at realities. There's a lot of ideology in the public discussion. Many "economists" automatically conclude that if there is a problem in the labor market, it must be a problem with private sector paid employment, i.e. to much employment protection, structural rigidities etc.. I say that everyone who makes such conclusions should first see what's behind the numbers. Do lower unemployment rates really reflect higher employment? And if they do, where are the differences in employment?

How does this look in concrete?

Lets start with Germany. In 2007 the country had 39.7 million officially employed. Of these 39.7 million 4.4 million were self-employed and another 5.5 million regular employees in the public sector and around 0.3 million in temporary government employment such as 1-Euro-jobs, ABM and so on. 29.5 million were private sector paid employees. That's 35.8% of the population ( 82.3 million, West-Germany 37% ).

Compare this with the U.K., the poster-child of "reforms" in Europe. The U.K. in 2007 had 29.1 million officially employed. Of these 29.1 million 3.9 million were self-employed and 5.8 million employees in the public sector. The remaining 19.4 million were paid employees in the private sector. That's 32% of the total population ( 60.6 million ). Significantly lower than in Germany.

Take Canada. Total employment in Canada is very high. Only very few countries such as Switzerland or Denmark have a comparable employment-population ratio. The U.S actually would have around 156 million employed instead of the 146 million ( 147.4 million with personnel on active military duty ) it has, Germany 42.5 million compared to currently 39.7 million.

So problems with to much employment protection in Germany ( or the U.S. )? Not exactly. Of the 17.1 million employed in Canada 2.6 million were self-employed and 3.4 million employees in the public sector. 11.1 million or 33.5% of the population ( 33.1 million ) were private sector employees. Even in Canada, one of the most successful countries worldwide in regard to the labor market, the population share of private sector paid employees is lower than in Germany.

And finally the U.S., home of unbridled capitalism and dreamland of all free-market enthusiasts ( some would call them free-market fanatics ). How does Germany compare? Not so bad. Of the 146 million civilian employed in the U.S. 2007 10 million were self-employed and 22.4 million civilian government employees. The remaining 113.6 million or 37.5 % of the population ( 302.6 million ) were private sector paid employees, only slightly more than in West-Germany ( 37% ). With a similar employment structure Germany as a whole would have around 1.4 million more private sector paid employees than it has now.

BUT: No other Western nation, probably no other nation in the world, has such an enormous military-industrial sector. Official defense expenditures in the U.S are in the range of $500-600 billion ( = Dutch GDP ) and independent ( American ) critics see it more in the range of 1 trillion. Many defense expenditures could be hidden in non-defense positions of the public budget. That pays for a lot of jobs. Most estimations of defense related private sector paid employment in the U.S. are in the range of 3-4 million. These are private sector jobs which are de facto government paid and government dependent and should be counted as such. A comparable number for Germany would be in the range of 1 million ( compared to currently 0.08 million ). Without these jobs the difference in private sector paid employment shrinks to less than 0.5% or 0.4 million. And nearly all of the remaining difference can be explained by lower private sector paid employment in East-Germany.

I don't see any reason why Germany should reduce its social or labor standards for a difference that is probably only in the range of a few tenth of a percent and which is with some realism only temporary ( and financed with enormous levels of debt in the U.S. ).

Besides, most of the differences between France and lets say Canada, the U.K. or Scandinavian countries can be explained by differences in self-employment or public employment. There are many ways to create high employment levels. Slashing social or labor standards is only one and often not the most successful way. And it's definitely not the best.

As a commenter in another forum asked:

Is it really better being a worker in the U.S. low wage sector without health care, paid vacancies or paid sick leave than being a part-timer or unemployed in Europe with health care and a better basic level of social safety? Your choice.

P.S.

You've mentioned yourself that Europe is not a single unit. You should make clear to your fellow Americans that you're de facto not talking about Europe as a whole but about the Mediterranean block inside the EU ( France, Spain, Italy, Portugal, Greece ) with a combined population of 180 million. The situation in North Western Europe ( Germany, UK, Ireland, Luxembourg, Austria, Netherlands, Belgium, Switzerland, Scandinavian countries ) with more than 200 million inhabitants is completely different. And in Eastern Europe it's different again.

[Lafayette]

g_r: I don't see any reason why Germany should reduce its social or labor standards for a difference that is probably only in the range of a few tenth of a percent and which is with some realism only temporary

Thank you for real evidence of just the sort of Leftist hubris that had condemned Germany to double-digit employment for such a long time. Just because that unemployment level has come down to single digits makes one think that Germany is out of the woods? No way, José.

Germany is a high labor-rate and therefore high-cost country. Its FDI is insufficient to develop employment and the current export boom - that makes Germany think all is hunky-dory once again -- is seriously threatened by a euro hovering around $1.60. (Why is Airbus closing factories in Europe and opening them in China?) Besides, engineering-based exports cannot sustain an entire economy regardless of how very advanced they are, which is the case.

Redefining labor and social standards, should not be touched, you say? Of course they should. They already have been, by Schroeder before he skedaddled to Switzerland for a cushy job at Vladimir's beck and call. The fact that Germans work longer for the same pension is a wake-up call ... if one is listening.

The fact that real estate prices remain too high for young couples to move into owned residences is not good for the long-term health of the economy. Only by lowering some building standards and getting more and cheaper foreign labor willing to work in construction, whilst the German variety farts around the house, will do the job.

The average annual work-hour rate for Germany is 1440 hours (OECD figures), the average for the expanded Euro-zone is 1648, nearly 15% more. And for the OECD it is 1753, almost 22% higher. How, pray tell, can Germany compete with such dismal performance -- given its generally higher labor rates.

But to think that Germany is "just fine" with its regimented labor conditions does not augur well for the future of employment in that country. France's President has recognized the error of its ways and is proposing "More Work for More Pay". Germany should heed the call as well.

Just when will the German Left understand ... when their unions inaugurate offices in the countries to which German jobs have been dislocated?

May I suggest that such is way toooooooooo late.

[Lafayette]

Post Scriptum:

What works splendidly in Germany, and should be adopted throughout the EU and the US, are very effective apprenticeship programs (across many industrial / commercial sectors) that allow the intermingling of both skill training and on-the-job experience. These apprenticeship programs should be free, gratis and for nothing -- in order to give the young semi-skilled workers a spring-board into durable employment.

Making them free or low-cost (meaning the students earn both a scholarship stipend and minimum wage - both untaxed) will enhance their attractiveness. So, there are Social Expenditures that benefit directly the untrained individual and industry / commerce alike.

Instead of people with diminishing skill-set utility bouncing from one meaningless minimum wage job to another and finally, in despair, surrendering to alcoholism.

Wear away an individual’s personal dignity and that is precisely what happens.

[german_reader]

@Lafayette

I think we could spin this on and on. Obviously everyone has his fixed set of beliefs and will not abandon them for nothing. Nevertheless to end our ( as always ) fruitless debate a few final remarks.

Yes manufacturing employment in Germany is under pressure just like in every other Western country. From 2000-2007 employment in manufacturing declined from 6.3 million to currently 6 million, a loss of around 5%, and especially low skilled jobs are affected. But not all of this is the result of off-shoring, 30-40% of the losses can be attributed to productivity gains, which are constantly outpacing sales growth. And Germany's exports have been hindered by a fast rising Euro ( from $0.90 to $1.60 ) which made German exports less competitive.

The U.S. lost during the same period 3 million jobs or 17.5% of all manufacturing employment ( from 17.2 million to 14.2 million ) - in a time when the dollar lost 40% of its value and the country created a massive housing bubble. There is in my view no reason to believe that longer working hours or lower social and labor standards in the U.S. have brought any advantage in international competition.

Besides, most of the countries which have comparable low working hours and high social standards as Germany ( countries such as Sweden, the Netherlands or Switzerland ) run high trade surplus and have very healthy foreign accounts. France is one of the few exceptions from the rule, but even there the trade balance looks healthier than in most AngloSaxon countries. Being social obviously doesn't mean not being competitive.

Nevertheless, as you said, concentrating to much on exports is in the long run no meanful strategy for a large economy and the German export sector is definitively overstretched and strangles the whole economy in the long run. And it makes the country extremely dependent from foreign markets. All this wage restraint, restructuring and "reforming" will prove needless in the near future because the rise of the Euro and the massive slow down in many of Germany's main markets will limit further export growth. The domestic market will not be able to replace this because mass incomes are stagnant and the German consumer will not be willing to follow the path of his American or British counterparts and go deep into debt to consume.

And yes, housing in Germany is to expensive. There's a lot of bureaucratic overkill and construction standards are often ridicously high. But Germany is twice as densely populated as France and eight times as densely as the U.S.. Most people accept that avoiding to much housing sprawl helps to protect the environment and makes the country more energy efficient in the long run. There is more behind the low house owner rates in Germany than simple economic constraints. And mortgage debt in general in Germany is half as high as in the U.S., the U.K. and some other countries. Most Germans could afford a house or appartment if they would take as much debt as Americans or Brits.

P.S.

I've looked up the labor market statistics for Australia, New Zealand and Ireland. Germany ( especially WestGermany ) beats five out of six AngloSaxon economies in regard to private sector paid employment. The only exception is your homeland, the great U.S. of A.. And there the numbers are, lets say, "problematic". No other Western nation has anything that is comparable in its economic importance and size to the military-industrial complex in the U.S.

And as I've said several times before according to German standards unemployment in the U.S. is currently at around 9% and it will reach double digit rates if the recession stays for longer.

[Lafayette]

g_r: And as I've said several times before according to German standards unemployment in the U.S. is currently at around 9% and it will reach double digit rates if the recession stays for longer.

Dream on, Germany isn't working.

Deutschland uber alles ... etc., etc., etc.

[hari]

You guys are getting crazy...with your *ancient* slogans!
Realestate prices in Germany are still lowest and very attractive for REIs. Berlin is now the most attractive investment focus of expatriates (mainly from US).