Employment prospects positive despite slow economy

According to the latest labour market statistics, employment prospects have not deteriorated in Germany, although early signs of an economic downturn have emerged since the spring of 2008. Nonetheless, policymakers and social partners continue to discuss how to avert the looming economic slump. While employer organisations call for contributions to the unemployment insurance scheme to be lowered, trade unions are demanding greater public investments.

On 28 August 2008, the Federal Employment Agency (Bundesagentur für Arbeit, BA) published its latest labour market report (in German, 1.2Mb PDF). The report shows that the number of unemployed people in Germany fell from 3,706,000 in August 2007 to 3,196,000 in August 2008. Compared with the previous year, employment that is subject to social security contributions has been created mostly in the following sectors of economic activity: business-related activities ( 6.2%), health and social work ( 2.8%), education ( 2.7%), transport and communications ( 2.3%), and manufacturing ( 1.9%). Jobs were lost, however, in sectors such as financial intermediation – that is, banks and insurances (- 0.9%) – construction (- 0.6%) and public administration (- 0.4%).

In an article in the Munich-based daily Sueddeutsche Zeitung on 29 August 2008, a member of the BA board, Heinrich Alt, pointed out that the positive trend in the labour market was continuing even in light of a sluggish economy. Nonetheless, policymakers and the social partners continue to debate further steps to ensure future economic growth and rising employment.

Public debate on labour market issues

Signs of an economic downturn have been emerging since the spring of 2008. Although the unemployment rate continues to decline, policymakers are debating how to deal with a looming economic downturn that could also negatively impact on the labour market situation. Views on this topic vary greatly within the current ruling coalition government formed by the Social Democratic Party of Germany (Sozialdemokratische Partei Deutschlands, SPD) and the Christian Democratic Union (Christliche Demokratische Union, CDU).

On the release of BA’s latest labour market report, the Federal Minister for Labour and Social Affairs, Olaf Scholz (SPD), outlined his position in an interview (in German) on 28 August 2008. Minister Scholz wishes to tackle unemployment by providing more opportunities for education and professional training. For instance, he emphasised that about 500,000 (mostly long-term) unemployed persons in Germany have no school leaving certificate. By proposing to introduce a legal entitlement to make up this deficit later in life, Minister Scholz hopes to improve the future prospects of these people on the labour market.

On 5 September 2008, the business daily Handelsblatt reported that the Federal Minister for Education and Research, Annette Schavan (CDU), had agreed with Minister Scholz on a proposal to finance measures leading to a lower secondary school leaving certificate (Hauptschulabschluss) from the unemployment insurance scheme. However, neither Minister Scholz’s initial proposal nor his reported agreement with Ms Schavan have so far gained the full support of their parties or the federal government.

On 28 August 2008, the CDU’s general line of argument to combat unemployment was presented in a press release (in German) by the party’s General Secretary, Ronald Potfalla, who suggested reducing the contributions to the unemployment insurance scheme from the current 3.3% to 3%. Mr Potfalla highlighted the advantages of this proposal, stating that while employees’ net wages would rise, employers would be tempted to create more jobs due to declining additional wage costs.

To gain a full picture of the political debate, a review of the different positions of the social partners is required.

Position of social partners

In a press statement (in German) on 28 August 2008, a Board Member of the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB), Claus Matecki, commented on the positive developments on the labour market. Mr Matecki welcomed the decline in the unemployment rate. Nonetheless, he also emphasised that the economic downturn needed to be countered. Mr Matecki proposed the following measures to reflate the market, such as greater public investments in education, climate protection, infrastructure improvements and social transfer payments. He added that the European Central Bank (ECB) could use its interest rate policy to strengthen the financial investment climate, thereby promoting further economic growth and stable employment.

On the same day, the President of the German Confederation of Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), Dieter Hundt, highlighted in a statement to the press (in German) the fact that though the economy had slowed, the labour market was still in good shape. Positive developments in the labour market were to be attributed to the ‘Agenda 2010’ reforms – a reform programme initiated under the previous social-democratic chancellor Gerhard Schröder (DE0311101N, DE0303105F, DE0209205F). However, Mr Hundt did call for an improvement of economic fundamentals so as to foster economic growth and employment. In his view, it was not expensive public programmes that were needed to reflate the market, but a further cut in the unemployment insurance contribution to relieve the burden on both employers and employees.

Sandra Vogel, Cologne Institute for Economic Research (IW Köln)

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