NCPA - National Center for Policy Analysis

Why Germany Fails To Create Jobs

February 10, 1997

Germany -- with an unemployment rate of 12.2 percent in January 1997 -- is notoriously poor at creating jobs, according to experts. While the German government blames everything from bad weather to a too-strong currency, others say the reason is the country's sky-high labor costs.

  • Since 1960, employment has risen less than 10 percent in Western Germany -- or about one-tenth the pace of job creation in the U. S.
  • It costs about $30 an hour to employ industrial workers in Western Germany, according to the Institute of the German Economy -- compared to $16.53 in the U. S.
  • But German workers see only about 55 percent of that in cash wages -- the rest going to payroll taxes and benefits.

Economists also point to outdated labor regulations as a cause of unemployment:

  • The government imposes regulations that protect existing jobs, preventing competition that would destroy them -- so firms can rarely fire anybody.
  • So when demand increases, companies ask workers to put in more hours -- rather than hire additional workers who can't be dismissed when times are bad.
  • Since jobless benefits last two years and welfare benefits kick in thereafter, more than 15 percent of all nonretirement households there have no one working.
  • In a system where government hands out benefits for sick days, German workers take more than a month's worth of sick days each year.

Finally, German workers see no point to laboring harder, with marginal tax rates 30 percent higher there than they are in the U.S.

Source: Perspective, "Job-Jive in Germany," Investor's Business Daily," February 10, 1997.


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