Accounting for the German miracle

Finally I’ve been getting a flood of German data.  I’ll rely on data from Mark Sadowski, but would also like to thank Johannes Fritz, libertaer, and Martin.  Here’s Mark:

The data is as follows:

RGDP (annual rate)
2006Q1 – 2,263,994.4 million euro
2008Q1 – 2,429,934.8 million euro
2012Q4 – 2,463,022.8 million euro

The average rate of growth fell from 3.6% to 0.3%

2006Q1 – 40.7 euro
2008Q1 – 42.6 euro
2012Q4 – 42.6 euro

The average rate of growth fell from 2.3% to 0.0%

Employment (1000)
2006Q1 – 38,940.0
2008Q1 – 40,250.0
2012Q4 – 41,719.0

The average rate of growth fell from 1.7% to 0.8%.

Hours worked at an annual rate (calculated)
2006Q1 – 1,428.5
2008Q1 – 1,417.2
2012Q4 – 1,385.9

The average rate of increase fell from (-0.4%) to (-0.5%).

Unemployment Rate
2006Q1 – 10.6%
2008Q1 – 8.0%
2012Q4 – 5.4%

So employment rose by 7.1% over a period of nearly 7 years, and hours per worker fell by 3.1%.  That means hours rose by 4%.  Productivity rose by 4.7% and RGDP rose by 8.8% (roughly half from more hours worked, and half from improved hourly productivity.)

Many commenters pointed to various job sharing programs, or subsidies to keep workers employed during the recession.  Libetaer used the metaphor of putting 2 workers in one chair.  The one chair reflects relatively meager growth in NGDP, and the two workers represent job sharing.

It would be a mistake to assume that the German miracle was an illusion due to all this job sharing and slow productivity growth (caused by keeping excess workers around.)  The welfare loss to a society from a 5% RGDP shock is much greater if 5% of workers lose their jobs, as compared to all workers staying employed, but working 5% less hard.  Yes, the miracle seems marginally less impressive, but I’d still prefer Germany’s labor market to France’s.

PS. Mark’s data doesn’t show a significant break in hours worked after 2008, so that factor may be overrated.

PPS.  The low level of hours worked in Germany shows the absurdity of blaming economic problems elsewhere on “lazy workers.”



28 Responses to “Accounting for the German miracle”

  1. Gravatar of John Papola John Papola
    7. May 2013 at 06:12

    Job sharing: real wage cuts by another name.

    Whatever works, I suppose.

  2. Gravatar of Geoff Geoff
    7. May 2013 at 08:08

    John: Real wage cuts were an unintended byproduct. They weren’t designed by any consciousness that would justify saying it “worked”.

    At the very least, in Germany’s case, real wages are higher than they otherwise would have been had there been 5% unemployment, ceteris paribus.

    The “reduction in real wages” is a temporal phenomena. The past cannot be considered as more “correct” given that the temporal reduction in real wages occurred.

    This short term temporal decline in real wages, because it is associated with more workers working now, will have the unique long term outcome of higher real wages than what would otherwise have existed.

  3. Gravatar of Frederic Mari Frederic Mari
    7. May 2013 at 08:30


    Real Wage Cut by Another Cut is not quite correct, I think. After all, it doesn’t do much for the employer’s costs, as far as I can tell. And compressing labor costs is the rationale for firing people/cutting salaries in the first place…

    Other than that, I think Geoff is right. By spreading the pain widely now, German workers can expect the overall situation to improve faster down the line. Ceteris paribus etc.

    To Scott: The ‘lazy worker’ non-sense isn’t so much about the amount of hours worked but about what gets done at work, all things considered. It’s still non-sense and it’s okay to try and deflate xenophobic idiots with such data but I suspect it’s a bit deeper than ‘they just don’t spend enough time at their desks’…

  4. Gravatar of SG SG
    7. May 2013 at 09:14

    I’m trying to find some more information on why the Nikkei 225 is up 4% today. I saw a FT article indicating that it was in response to the Australian CB cutting rates. Is this accurate? Are markets finally expecting the world’s central banks to give war a chance and simultaneous devalue their currencies?

  5. Gravatar of mbk mbk
    7. May 2013 at 09:25

    Well so here we still have a conundrum. Suppose Marcus Nunes is right and the ECB policy was optimal for Germany 2008-2012. Scott’s data show whatever was done was surely optimal for employment. And the loss in real wages, temporary or not, is the whole point of NGDP targeting (to circumvent sticky wages – the Germans circumvent them by short work schemes plus supposedly a friendly ECB but in essence the idea is the same).

    Now can someone explain to me – all the above somehow suggests *as far as the Germans / Austrians are concerned* a) no nominal shock actually happened in the 2008 crisis or b) whatever nominal shock happened that they inherited from elsewhere, the policy response was near optimal for Germany. So the nominal problem was either not taking place or was near optimally buffered. (Plus, neither Germany nor Austria had oversized Icelandic/Irish/Cypriot/UK style financial sectors dragging them down). Why did Germany have a fall in real parameters at all then? If “the real problem was nominal” in 2008 and the nominal was pretty well taken care of, meaning according to Marcus Nunes you can’t blame the ECB for German data, why then still a real effect? In other words: When we are looking at real German/Austrian data 2008-1012, are we looking at the *real* residual of the 2008 crisis?

  6. Gravatar of Morgan Warstler Morgan Warstler
    7. May 2013 at 11:10

    “The welfare loss to a society from a 5% RGDP shock is much greater if 5% of workers lose their jobs, as compared to all workers staying employed, but working 5% less hard.”

    I don’t quite get this.

    What really happens is different, seems even worse, but is likely better.

    If the economy suddenly takes a hit, you WANT the least productive at a given to be given the pink slip and wake up call. And you want the most productive to dig in even harder.

    You want the same thing to happen to firms, the weakest to die during the harsh winter.

    Note that job sharing doesn’t save a whole firm, so we’re already half Darwin anyway.

    I view everything thru the lens of GI CYB, so the wake up call isn’t very hard to deal with. No one goes unused, no one sits on couch, we just have a greater percentage of folks suddenly rethinking their career strategy.

    My point is, having everyone share the pain, doesn’t bode well for long term fitness of a given firm, or the long term fitness of the country that thinks this way.

    Telling ya, once you stop using wages as the tool for safety net its a lot easier to be maximize utility.

  7. Gravatar of Geoff Geoff
    7. May 2013 at 11:18

    Frederic Mari:

    I should have included the argument that employment and output are not linearly related. Twice the number of people working in a division of labor does not generate twice the output.

    With more people in a division of labor economy, there is a productivity gain to be made on the basis of the division of labor itself becoming extended and specialized.

    100,000 people working in a communist, command economy would almost certainly be less productive than 100,000 people working in a laissez-faire, division of labor economy.

  8. Gravatar of Geoff Geoff
    7. May 2013 at 11:20

    And similarly,

    100,000 people working in a division of labor economy would likely be more productive than 95,000 people with 5,000 unemployed in a division of labor economy, even if the average worker works with the same “effort”. The specialization extension itself has its own opportunity for gains.

  9. Gravatar of Geoff Geoff
    7. May 2013 at 11:21

    Sorry, should have said even if the average worker works with 95% of the “effort”.

  10. Gravatar of Joe Eagar Joe Eagar
    7. May 2013 at 11:45

    John Papola: That’s the idea. It’s immoral when a society protects the wages of employed workers by excluding a minority from employment altogether. It’s the leftist version of “the reserve army of unemployed,” and is just as disgusting as a concept.

    Sometimes wage are to high. That is an economic fact, and it happens in all countries. The answer isn’t to heap all the pain on the unemployed. I fail to see how this is any different than, say, passing the pain onto ethnic minorities (a common practice in developed countries until very recently).

  11. Gravatar of Joe Eagar Joe Eagar
    7. May 2013 at 11:51

    Morgan, what if you have a lot of unskilled workers who have very small marginal products? The answer clearly isn’t education; we tried that already. Some people are truly limited in how much they can develop their personal productivity.

    The classical answer is that employers should build better machines and business strategies; if you can’t increase the human capital of a worker, increase the physical and organizational capital that worker makes use off instead.

    That approach strikes me as the right one. The gains from education have probably maxed themselves out in developed economies where unskilled workers are concerned. If we can’t make unskilled workers smarter and more innovative, let’s give them better tools to work with.

  12. Gravatar of Morgan Warstler Morgan Warstler
    7. May 2013 at 11:54

    See Pappy, its simply easier to go GI CYB.

    Get the morality / suffering / excluding stuff immediately off the table and get back to raw unbridled capitalism.

    Its crash helmet and roll cage instead of speed limiters or making some drive with an eye shut.

    If we’re not careful, everybody will have to get a trophy.

  13. Gravatar of Morgan Warstler Morgan Warstler
    7. May 2013 at 12:09


    I don’t disagree. When a neighborhood with 30 dog owners get together and offer a 20 yr old kid $80 ($2.66 apiece) to clean up dog dirt in their yards once a week, he’s incented to find tools that make it even faster… and so are they.

    What matters is that nobody thinks he lives on $80, they instead KNOW they have already covered him with GI as taxpayers and this is how we equitably decide who gets to tap the unused labor.

    The reality is that we don’t KNOW right now whats worth $40, $80, or $160 a week… what jobs carry what psychic hedonic value at the low end?

    Can you be an artist painting murals? Does live music become more common in restaurants? Is increasing the speed at which you can do the $80 job, so you have more free time with your kids? Do paid internships / apprentice jobs take off?

    What we do know is everybody works… and the folks in the most distressed areas see their own costs of services go down.

  14. Gravatar of Mark A. Sadowski Mark A. Sadowski
    7. May 2013 at 14:33


    You wrote on the previous thread:

    “Finally, if the nominal mattered so much, why don’t non Eurozone countries (UK…) do much better than Eurozone countries? With their independent monetary policies, shouldn’t they at least do as well as Germany?”

    Ten of the 27 EU members are not in the eurozone. Four of them are pegged to the euro (Bulgaria, Denmark, Latvia and Lithuania). So that leaves only six EU members with an independent monetary policy: 1) Czech Republic, 2) Hungary, 3) Poland, 4) Romania, 5) Sweden and 6) the U.K.

    As of 2012Q4 only seven EU members have surpassed their previous peak in RGDP: 1) Austria, 2) Belgium, 3) Germany, 4) Malta, 5) Poland, 6) the Slovak Republic and 7) Sweden. Here’s a plot of their RGDP indexed to previous peak (Malta is not available):

    Of those countries only Poland, Sweden, the Slovak Republic and Malta (in that order) are doing better than Germany in terms of current RGDP relative to previous peak. So the two best performing EU members by this measure both have an independent monetary policy, or a third of all the countries that do.

  15. Gravatar of Mark A. Sadowski Mark A. Sadowski
    7. May 2013 at 14:35

    A plot of NGDP for the same countries indexed to the same dates in case anyone is interested:

  16. Gravatar of Joe Eagar Joe Eagar
    7. May 2013 at 16:33

    Morgan, what’s GI CYB (I tried Googling it to no avail). Is it some sort of active labor market policy?

  17. Gravatar of mbk mbk
    7. May 2013 at 18:24

    Thanks Mark. The graphs do feel a little different from Marcus Nunes’ graphs but I suppose it’s in the same vein. Poland is the only one really sticking out on the positive side, which really surprises me because Poland has very high unemployment. Another counterfactual. See your same countries here in terms of unemployment:!ctype=l&strail=false&bcs=d&nselm=h&met_y=unemployment_rate&fdim_y=seasonality:sa&scale_y=lin&ind_y=false&rdim=country_group&idim=country:pl:at:be:de:sk:se&ifdim=country_group&hl=en_US&dl=en&ind=false
    (side note – Poland not long ago had Greek/Spanish levels of unemployment, down til 2008 then up again and rising).

    Seems once again only Austria and Germany, all things considered, have squared the circle.

  18. Gravatar of Mark A. Sadowski Mark A. Sadowski
    7. May 2013 at 19:58


    The European Commission’s estimates of the Non-Accelerating Wage Rate of Unemployment (NAWRU) put it at 4.4%, 6.3% and 8.9% in Austria, Germany and Poland respectively in 2012:

    The unemployment rate averaged 4.3, 5.5% and 10.1% in Austrian, Germany and Poland respectively in 2012. Thus Austria was more or less at full employment, Germany was a little above full employment, and Poland was a little below full employment in 2012.

    Back in 2002 when the Polish unemployment rate averaged 20.0%, the NAWRU was 16.7%, so most of the decline in Polish unemployment since then is due to the downward trend in structural unemployment.

    There are a number of reasons why the Polish structural unemployment rate is still so high, but my impression is that the main reason is a lack of labor mobility due to poor rural transportation infrastructure and a lack of private urban rental housing. This and the other reasons have been addressed in the OECD’s various country surveys of Poland.

    This is a supply side issue, not a demand side one, and hence it is not amenable to good monetary policy.

  19. Gravatar of ssumner ssumner
    8. May 2013 at 07:44

    mbk, I’ve always argued the real problem was nominal at the global level, and mostly nominal at the US level. When you get to smaller export-oriented economies there is no way they can avoid a big fall in RGDP in late 2008 when world trade collapses. That’s a real shock.

    I’m still inclined to think that aggregate wage income is the best indicator, despite Marcus’s argument.

    Morgan, We don’t have your system, we have a lousy unemployment system.

  20. Gravatar of Ashok Rao Ashok Rao
    8. May 2013 at 09:53

    “When you get to smaller export-oriented economies there is no way they can avoid a big fall in RGDP in late 2008 when world trade collapses. That’s a real shock.”

    Isn’t this just a global extrapolation of the thrift paradox?

  21. Gravatar of ssumner ssumner
    9. May 2013 at 04:41

    Ashok, I don’t see why. Recessions are not caused by too much saving.

  22. Gravatar of Ashok Rao Ashok Rao
    9. May 2013 at 04:46

    My consumption is your income, so when I consume less you earn less.

    My imports are your exports, so when I import less you earn less.

    Fall in trade because of financial crisis seems totally nominal to me. A real shock would be a collapse in the institutions that supported it thereof (WTO, general principle of liberal economics, political will, etc.)

    Failure of trade institutions can be a real shock perhaps for one economy, but for the world as a whole it seems entirely nominal.

    But when you say “When you get to smaller export-oriented economies there is no way they can avoid a big fall in RGDP in late 2008 when world trade collapses. That’s a real shock.”

    It kind of reminds me of, say, the affluent masseuse in a poor town whose suddenly confronted by the fact that everyone wants to save their money.

  23. Gravatar of Steve Roth Steve Roth
    9. May 2013 at 05:32

    Scott, on this labor share issue, would love to hear what you think about these:

  24. Gravatar of Edward Lambert Edward Lambert
    9. May 2013 at 09:54

    Hi Scott, I read on Angry Bear today that you are talking about monetary policy based on targeting labor share. I made a model for it just within the past week. I worked late into the nights and made myself sick. But I hammered it out.
    Then when I read this morning that you were talking it. I am inspired with your insights.
    Let me give you the main link to my model for monetary policy based on labor share of income. Maybe it will serve you…

    You will see in the graphs that a labor share below a certain amount makes monetary policy ineffective. Thus it follows that targeting a higher labor share would resuscitate monetary policy. It also follows that a labor share that is too high will produce a too high Fed funds rate. There is a perfect level which I would put at a labor share index (business sector) of 103 to 108. This would allow monetary policy to be effective even in a severe slump like we had and only prescribe Fed rates as high as 9% when the economy heats up in normal times.

    This post is on minimizing inflation targeting in the model of monetary policy…

  25. Gravatar of Ashok Rao Ashok Rao
    9. May 2013 at 10:26

    @Edward Lambert,

    Was it targeting labor share or labor income? Because if targeting labor income is not reducible to targeting NGDP then, ipso facto, it is not targeting labor share.

    I’ve gone through your model, and need some time to think, very provoking. But I feel targeting labor share would be very detrimental under certain positive real shocks. Say, scientists and technologists create programs to outdo 20% of human activity. In this case if you target a labor share you must unduly constrain either capital profits or inflate labor income (which then will constrain capital).

    A secular decline of labor share has been the societal trend for a long time, now.

  26. Gravatar of Edward Lambert Edward Lambert
    9. May 2013 at 12:09

    @ Ashok Rao
    The model is for targeting labor share percentage (%)… not labor income.

    If scientists create a program to outdo 20% of human activity, that is like Nigeria where the petroleum industry produces a lot of national income, but doesn’t share that income with the population. Labor share is low in Nigeria. The result of your scenario would be similar… large numbers of marginalized workers, unless they can develop a domestic economy. In order to develop a domestic economy, you need higher labor share.
    You go to some of the middle east countries that also have petroleum, but they provide free education and business developments for the population. Then you see to what extent those programs are economically sustainable by looking at the labor share in domestic markets.

    And you are right… labor share has been declining in advanced countries for many years, while rising in some emerging economies.
    China is aware of this issue and is raising the minimum wage by 13%-year over the next 5 years.
    Scott Sumner is revealing this data now. I still have to think about his analysis.

  27. Gravatar of Ashok Rao Ashok Rao
    9. May 2013 at 21:15

    @Edwart Lambert,

    Right, I understand that you wanted to target %, not income, but you implied that Scott also was talking about that – I was wondering if I had misunderstood because I think he just wanted to target nominal wage accruals.

    On the Nigeria comparison, I disagree because there is nothing “productive” about converting capital stock into cash flow. There is something “productive” about a society that engineers software and robots to fill menial positions.

    So as long as labor share declines from human ingenuity, I cannot see how it’s a bad thing.

  28. Gravatar of Steve Roth Steve Roth
    13. May 2013 at 05:15

    Ashok and Edward:

    If you’re still watching here, Steve Waldman addresses this very nicely:

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