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The Germans are back!

by Colman Tue Oct 23rd, 2007 at 08:02:03 AM EST

In an exciting development the Germans have excited the wrath of the economists yet again. From Telos-EU

Hello, is there an economist in the house? Evidently, those currently in power missed a key opportunity to explain to voters why tough labor market reforms in Germany significant cuts in both the level and duration of unemployment benefits, increased pressure to take up work, combined with deregulation of the temporary help service and part-time job markets were sorely needed to raise the sustainable path of output, and not simply self-flagellation. Instead, two years have passed without further action a missed opportunity to organize majorities for deeper reform while the economy is growing. Vacancies are at an all-time high, labor shortages are beginning to emerge and, at an official unemployment rate of around 8.5%, wage growth is picking up and unions are striking again for more. Eyeball econometrics suggests that the equilibrium rate of unemployment has not fallen as much in Germany as it has over the past two decades in the Netherlands, Denmark, Ireland, and the UK. Unlike those successful reformer countries, Germany started, but has not yet finished its supply side homework. If it backslides now, it and the rest of Europe will pay the price when the next downturn comes.
He did it: he committed the unforgivable sin of using the official 8.5% rate rather than the OECD rate, which is, as Angry Bear pointed out when provoked by an article in a US paper, 6.4%. Bad, bad, Micheal Burda. He also trots out a grossly dishonest comparison between Ireland (4M people, pumped up on rapid economic catch-up and EU funds) and Germany (82M people, recovering from bad decisions joining the euro and reunification).


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Hello, is there an economist with a clue in the house?
by Colman (colman at eurotrib.com) on Tue Oct 23rd, 2007 at 08:04:53 AM EST
Can anyone link to standardised OECD employment rates? I'm curious.

"If you know your enemies and know yourself, you will not be imperiled in a hundred battles." Sun Tzu
by Turambar (sersguenda at hotmail com) on Tue Oct 23rd, 2007 at 08:36:38 AM EST
by Colman (colman at eurotrib.com) on Tue Oct 23rd, 2007 at 08:39:09 AM EST
[ Parent ]
And do remember that even those rates are fraught with problems if you want to compare them in any useful way.
by Colman (colman at eurotrib.com) on Tue Oct 23rd, 2007 at 08:40:39 AM EST
[ Parent ]
I've seen those numbers, but I wanted to see data on employment vs. population.

"If you know your enemies and know yourself, you will not be imperiled in a hundred battles." Sun Tzu
by Turambar (sersguenda at hotmail com) on Tue Oct 23rd, 2007 at 08:44:57 AM EST
[ Parent ]
That's in there as well - look at the first link I gave you under civilian employment (I think).

All the data is available on that site.

by Colman (colman at eurotrib.com) on Tue Oct 23rd, 2007 at 08:47:14 AM EST
[ Parent ]
Thanks, I finally found it in another query (LFS by sex and age).
Labour force participation rate 2006:
OECD    72,9
EU-15   72,8
USA     71,7
Germany 69,3

The small difference here can be explained by longer education.
Age group 15-24:
Germany 53,9
USA     63,3

Given that higher education is getting shortened at the moment (and pension age rising), it should evaporate soon.

/still doubting that more work is a good thing

"If you know your enemies and know yourself, you will not be imperiled in a hundred battles." Sun Tzu

by Turambar (sersguenda at hotmail com) on Tue Oct 23rd, 2007 at 09:40:00 AM EST
[ Parent ]


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Oct 23rd, 2007 at 09:57:09 AM EST
[ Parent ]
The OECD didn't give that curve for Germany (though the others tally).

According to OECD (see below), German LF participation rate went from 71.5% to 73.8% between 2002 and 2005.

So what is Thomson Datastream?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Oct 23rd, 2007 at 10:50:23 AM EST
[ Parent ]
It's all about efficently using all the economic resources: if not enough people are working it means the supply isn't flexible enough. It can't be that prices are too low.
by Colman (colman at eurotrib.com) on Tue Oct 23rd, 2007 at 10:00:23 AM EST
[ Parent ]
The full series are in the Statistical Annex to the OECD Employment Outlook 2007 (pdf).

This table (click to enlarge) gives the employment ratio (employed / working-age population), the labour force participation rate (labour force / working-age population), and the unemployment rate (unemployed / labour force), over five years to 2006.

Caution: employment statistics, particularly when used for inter-country comparisons, need to be looked at with a certain degree of scepticism.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Oct 23rd, 2007 at 10:42:18 AM EST
[ Parent ]
Those damn statistics. Someone always has the better data. ;)

"If you know your enemies and know yourself, you will not be imperiled in a hundred battles." Sun Tzu
by Turambar (sersguenda at hotmail com) on Tue Oct 23rd, 2007 at 05:45:14 PM EST
[ Parent ]
that Germans are thinking about rolling back "reform" and thus need to be reminded that they are really failing - as demonstrated by ugly unemployment numbers (and not by things like life expectancy differentials...)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Oct 23rd, 2007 at 09:55:11 AM EST
"Eyeball econometrics" sounds like "Soundbite statistics", a phrase I coined some time ago.

And they teach us, as usual, that the employment performance of certain countries has improved consecutive to (and no doubt therefore consequent on) labour market reforms. Interestingly, here the countries cited are Ireland, Denmark, the Netherlands, and the UK.

Exactly the same set as in the IMF report we saw yesterday. In that report (big pdf!), on page 58, we have a lovely supply-side fairy tale telling the same story of exactly those four countries. It is told more fully by the IMF economist, Anthony Annett (who contributed the short piece in the report), in the May 2007 IMF policy paper Lessons from Successful Labor Market Reformers in Europe.

In which three small economies with very specific local conditions are lumped with one the size of the UK. And we learn that the UK halved unemployment over the last twenty years or so.

True, but it was done by bringing about large-scale withdrawal from the labour market towards inactivity, by means of long-term sickness (Incapacity Benefit) in particular. The UK no longer has any long-term unemployed, they're all off sick. Add to that a dose of fragmented employment (very short part-time and temporary work, the Netherlands "miracle" was based on it to a great extent) and you've got a "full-employment economy".

Bingo!

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Oct 23rd, 2007 at 11:11:35 AM EST
For the non-economists out here, could someone please explain what supply-side economics is and how it's different from Reaganomics voodoo economics?

Over the space of the past six months, I've seen and heard our current PM described as a former believer in Reaganomics voodoo economics (personally, I suspect that he's still a True Believer, only he's had to tone down the public appearance of a deranged libertarian), which presumably means that it's not being practiced in Denmark anymore.

But here the IMF goes and says that Denmark is practicing supply side economics. And I had the impression that Reaganomics voodoo economics and supply-side economics were one and the same?

And while we're at the economics 101 questions, what's the difference between neo-classical and neo-Keynesian economics? I thought Keynesian economics were the same as classical economics, but neo-Keynesian economics have been contrasted on this blog with neo-classical economics?

I'm confused now. I realise that this is fairly basic questions, but I'd really appreciate if someone were to de-confuse me.

And since economics seems to come up here quite a lot (and since I don't think I'm the only non-economist here), would it be possible and desirable to make a FAQ or an Economist-speak for dummies guide somewhere on the site for future reference?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 24th, 2007 at 05:47:46 PM EST


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