What the US can learn from Germany about jobs

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http://news.yahoo.com/s/yblog_thelookout/20110322/ts_yblog_thelookout/ich-bin-ein-example-what-we-can-learn-from-germany-about-jobs

Ich bin ein example: What we can learn from Germany about jobs

As the United States struggles to fix its ongoing jobs crisis, could it learn a thing or two from Germany?

That country's government painted a rosy economic picture yesterday, saying the early part of 2011 saw strong growth, which is expected to continue for the rest of the year. In reality, things have been up and down for Germany since the global downturn—its economy bounced back strongly in early 2010, then seemed to flag late last year, and now looks to be on the upswing again. That volatility has triggered debates both there and here about whether spending cuts or old-fashioned Keynesian policies have proved more effective—with the usual suspects lining up on each side.

But here's the thing: Through it all, no one disputes that employment levels—though lower than America's during the boom years—have during the downturn held remarkably steady, relative to the United States. Even at the nadir of the recession, Germany's employment level was down by just 0.5 percent from its pre-downturn peak. No wonder economists talk about Germany's labor market "miracle."

Compare that to the situation state-side: Yes, the economy is finally producing jobs again, but economists say at this rate it'll take until 2019 to replace the nearly 8 million lost during the Great Recession. And the official unemployment rate is still 8.9 percent—a full point higher than Germany's.

A range of analyses suggest that steps taken by German policymakers and employers, both before and during the recession, successfully limited the damage the downturn was able to do on the country's labor market.

First, Germany has focused very directly on protecting existing jobs. Through its "kurzarbeit" program, the government provides subsidies to employers who avoid laying off workers during periods of low demand; instead bosses are encouraged merely to reduce the hours that employees work. Employers themselves have also created more flexible arrangements with their workers: Under a system of "working time accounts," employees work overtime without additional pay when demand is high during boom times, then during the downturn work shorter hours, again at regular pay. The system helps everyone better weather the ups and downs of the economy without the need for layoffs.

A new study [pdf] released last week by the Brookings Institution found that the "working time accounts" system helped keep joblessness down. A more suggestive finding of the Brookings study, though, is that the greater stability of the German jobs economy comes from the measured pace of its expansion. During the boom years, the Brookings researchers found, German companies cautiously avoided ramping up hiring—meaning, in turn, that they didn't need to scale back as drastically once things went south.

For U.S. employers to adopt ideas such as the kurzarbeit program or working time accounts would require a far-reaching change of philosophy. Here, even the most aggressive jobs strategies—stimulus spending, for instance—are much less direct. They aim to boost economic growth, under the theory that doing so will lead naturally to job creation. That's usually a safe assumption, but it means that if for some reason the growth strategy fails, the jobs strategy fails too. That's largely what happened last year, when anemic growth kept unemployment sky high.

Some argue there's also a more deeply rooted explanation for Germany's relative success in holding onto jobs. As the Washington Post's Harold Meyerson has written, Germany's manufacturing firms still hire large numbers of domestic workers, rather than turning to lower paid foreign workers as many of their U.S. counterparts do. That's not because German execs are inherently any more civic-minded than American one—instead, they're acting under the constraints of Germany's "co-determination" system, which aims to ensure that corporate boards contain an equal number of labor and management representatives. Here, by contrast, organized labor is fighting to avoid seeing its clout reduced still further.

This is not to say that Germany's approach represents a workers' paradise. Its "Hartz Reforms"—implemented between 2003 and 2005 based on the recommendations of a commission led by former Volkswagen executive Peter Hartz—scrapped some payroll taxes, offered subsidies to encourage entrepreneurship, begun paying job placement centers based on their record of success at placing workers, and reduced the duration of jobless benefits, in order to spur the unemployed to find work quickly. Some argue that similar measures here would help reduce unemployment.

Of course, there are some important underlying differences between the U.S. and German economies. For one thing, Germany didn't have a housing bubble, and so didn't suffer the enormous loss of household wealth the U.S. did. Still, Germany actually experienced a slightly larger economic contraction than did America. So the comparatively robust state of Germany's jobs-based recovery means its example is worth paying attention to—especially as America's struggle to replace its millions of lost jobs will linger on for years to come.

Edited March 22, 2011 by Why_Me