Most people seem to have misinterpreted my previous post, probably because I “buried the lede” at the end. Just to be clear, I have no problem explaining why German unemployment fell between 2006 and 2012. Although NGDP growth was fairly slow, Germany did lots of labor market reforms, which I’ve discussed in previous posts, and this opened up lots of low wage jobs. That could also explain the relatively weak productivity figures, although as I indicated earlier there are lots of issues with German data, so I’m not sure exactly what happened to productivity.
Mostly I was asking if anyone knew of any accurate data for German employment, hourly productivity, and hours per year between 2006:1 and 2012:4. No one seemed to know, so I assume the data is very hard to find, if available at all. And even if I had the data, it wouldn’t really have any causal implication, it would simply be an accounting-like partitioning of growth into its components (labor employed, hours per year, and productivity per hour.
What I found amazing was the fact that total nominal compensation kept growing at roughly 3% per year, even as NGDP growth slowed from 4.8% to 1.3%. In case anyone doesn’t think that is amazing, consider that the invaluable Mark Sadowski did research on this and found that nothing like that happened in any of the other eurozone members:
I checked to see how Germany compares with the 15 other eurozone members for which there is data (using the most recent quarter for which they have data) and what I found was Germany is the *only* country *not* to have a big drop in the rate of nominal labor compensation growth since 2008Q1. This seems to support David Beckworth’s argument that ECB monetary policy is primarily geared towards Germany’s needs.
I would encourage readers to not jump to conclusions when thinking in terms of the “musical chairs model.” There’s a temptation to say; “the real problem was X,” when X was simply a manifestation of the musical chairs problem, i.e. the tendency for the unemployment rate to rise when wages are sticky and nominal income growth slows sharply. Let me be more specific. Suppose someone said the real explanation was the labor market reforms of around 2003-05. Here’s how I would respond:
1. Yes, that’s why Germany could create more jobs with a given amount of NGDP growth than the other eurozone members. Call that the “miracle of 2006-12″
2. But no, that doesn’t explain why German unemployment continued falling after 2008, when NGDP slowed sharply. But the fact that aggregate nominal employee income continue rising at roughly 3% does explain why German unemployment kept falling after 2008. Call that the “miracle of 2008-12″.
Those are two very different “miracles,” which require very different explanations.
[Update: Marcus Nunes has an excellent post that presents a different interpretation, one more favorable to NGDP targeting. I'm still thinking about the issue.]
PS. This was one of the most successful labor market reforms in history. The data suggests it increased the share of German GDP going to the working class. However by creating low wage jobs it may have also made German wages more unequal. So naturally the party responsible for one of the most successful labor market reforms in history now wants to scale back the reforms, and even the Christian Democrats are calling for a minimum wage. Here’s The Economist:
WHEN Gerhard Schröder took to the podium in the Bundestag on March 14th, 2003, Germany was called the “sick man of Europe”. More than 4m Germans (11.6% of the workforce) were on the dole. A widespread assumption was that unemployment could never be defeated, merely “administered,” says Wolfgang Clement, who was the former chancellor’s labour and economics minister. Countering that spirit, Mr Schröder unveiled a package of reforms that he called Agenda 2010. The leader of the opposition, a little-known physicist from east Germany called Angela Merkel, derided it as unambitious. But it soon became clear that the agenda would transform Germany’s labour market.
Ten years later, what is the verdict? Financial crises be damned, Germany stands as an economic beacon, with record employment and the lowest youth unemployment in Europe (see chart). Some countries are studying Agenda 2010 as if it were a manual. Mr Schröder is being feted at conferences all over the world.
Only the Germans themselves, and notably Mr Schröder’s own Social Democrats (SPD) and the Greens, who were his coalition partners, seem unsure whether Agenda 2010 was a blessing or a curse. Now in opposition, but hoping this year to defeat Mrs Merkel, who replaced Mr Schröder as chancellor, the SPD cannot exactly disavow its own reform. But it is signalling to its blue-collar base and its own left wing that it might undo parts of it.
So the one European economy with a healthy economy wants to undo the reforms that made it successful. Go figure.