Over at Econlog I have a new post discussing the German jobs miracle. The punch line is that both NGDP and wages in Germany behaved in about the same way as in America. This means that my “musical chairs model” predicts that job creation would also be about the same. However Germany employment is up 6% over the past 6 years while US employment is down 0.7%. The mystery is resolved if you look at labor income as a share of NGDP–it did far better in Germany than in the US.
This graph over at Free Exchange made me want to take a look at the British data:
Notice that US RGDP has risen far faster than British RGDP, and yet Britain has created significantly more jobs.
Here’s some data I collected, 4th quarter of 2007 to 4th quarter of 2013:
Country —– United States Britain
RGDP growth 6.2% -1.3%
Change in U-rate +2.2% +2.1%
Employ. change -0.7% +2.5%
Weekly wages 13.6% 10.7%
When considering job creation in the UK, it’s tempting to focus on slow wage growth and/or productivity. But in a sense the US is the outlier. I couldn’t find data on the share of GDP going to labor in the UK, but the data I do have (weekly wage growth plus employment growth) indicates that total labor income probably grew by just over 13%, about the same as NGDP. Thus labor’s share was probably stable. In contrast, in the US labor’s share of GDP fell by 3.6%, and this largely explains why employment fell, despite NGDP growing a bit faster than weekly wages.
So Germany saw strong wage growth due to a rising share of income going to labor, in the UK employment grew more slowly with a stable share, and in the US employment fell with a declining share of income going to labor.
Is that pattern likely to repeat in future cycles? I doubt it–it seems more like a coincidence. Something that happened in each country for reasons unrelated to the recession. In my view the keys are still nominal hourly wages and NGDP growth.
Also notice that British NGDP grew a bit faster than German NGDP (which grew 12.8%.) Thus when Keynesians argue that Germany did better than Britain because of a more expansionary fiscal policy, they are doubly wrong. First, because Britain ran far bigger deficits than Germany–only with creative accounting (lower GDP implies a smaller cyclically-adjusted deficit) do you get Britain having tighter fiscal policy. And second, because Britain actually saw faster growth in nominal spending—the UK RGDP shortfall (relative to Germany) was 100% supply-side. Thus arguing that British AD did worse than German AD due to a less expansionary fiscal policy is absurd, as there is no relative AD shortfall in Britain that needs explanation!