Tuesday, October 7, 2008

The German workforce: Still socialized but shifting right

From an American point-of-view, the German labor force is rather phenominal. Workers are trained straight out of high school in a specific industry, where many spend the bulk of their seemingly satisfying careers. If a worker becomes unemployed, then he/she claims unemployment (social security in the U.S. as well) from a well-funded pool, and if need be, is retrained to work in an industry with stronger growth potential (there is no such comparable program in the U.S.).

Prior to 2006, each German worker paid 6.5% of their gross wages into an employment fund, which was joinlty used for unemployment benefits and work programs. However, in 2006, the government lowered the contribution rate to 4.2% and privatized the funds, where 2/3 of the tax goes pays into each worker’s insurance fund. The newly added work incentives spurred a sharp reduction in the unemployment rate that continues to decline during this global financial crisis. What a step forward for the Geman labor force!

A tale of two German workers

First, let’s look at a couple of typical – but very interesting – German labor stories. These are two men that I met last evening at a small pub in Lachendorf, Germany.

1. A man named Jörg (prounounced Yerk). He was round, but strong, and wore a red rain coat. Apparently his wife had kicked him out of the house for the evening so that she could have girlfriends over. Jörg drills for a living in Bavaria (the Alps): two weeks drilling in Bavaria and two weeks home in Lachendorf (Northern Germany). He drills for - not oil, not natural gas - hot water....yes, hot water! Apparently that is the newest wave of green energy produced by the Germans.

He drills 5,000 meters into the ground (16,404 feet) to find water that is 253 degrees celcius (487 degrees farenheit). This is dangerous, where as with any other drilling job, the risk of a heat blast always lingers, and to breathe the heat means death (that is what he told me with fantastic body language). They use the steam from the non-depletable hot water supply to produce energy. I don’t remember what he called it, but he totally understood when I asked him if it was grüne Energie (green energy)! According to Jörg, there is strong growth potential in this industry.

I later found out – after his wife had given him the green light to come home – that Jörg was not always in the hot water drilling business. He spent a portion of his recent career unemployed, and thanks to the German government’s work program sponsored by 4.2% of each workers pay, he was retrained to work in an industry with strong growth potential: hot water drilling.

Point: Jörg used to be employed and was retrained to work in an industry with high expected growth. He is now happy and satisfied.

2. A man named Gernot. He was thin with glasses, quiet, and wore a blue sweatshirt. He was rather introverted, but if you asked him about his job, the conversation really took off: he works at a paper factory – yup, he “makes paper.” I thought for sure there was some assembly line setup, where he had one comparative advantage in the whole process, but no, he is actually one of the few men that makes the paper.

At my insistence, he carefully explained to me how one adds pulp and some special substance to a lot of water (he actually told me the measurements, but i did not understand), strains it through some massive strainer-type thing, and then rolls it, adding starch (or something similar) so that the paper is not too porous. He makes high quality paper, and not your resume paper, paper that is desinged not to bleed. He makes passport paper, currency paper, and really any paper with some sort of watermark or line going through it so that it CANNOT be forged. All at a paper factory that just celebrated its 470th birthday (the paper factory is much older than America)!

And this is where the conversation got really good: Gernot told me about his dream. His path to early retirement is to make passport paper for the Chinese and Indian governments, unforgable paper with a line, watermark, colors, and a stamp that can only be detected under the blacklight. He thinks that if he can retain just part of the government’s order, then he will be set for early retirement. The guy really likes his job – making paper!

He trained for this job straight out of secondary school and will be at the paper factory for the rest of his career. Interesting thing about the German labor market: every person is trained to work a specific job, and the training varies for each job prospect. My husband is banker, and that requires higher specialization, so he went further than did Gernot, Gymnasium and University. But from what I could tell, Gernot loves his work, is quite good at it, and has always been on a certain career path.

Point: Germany is industrialized, where the government filters workers carefully through the education system, each according to their innate qualifications and training to produce rather satisfied workers.

With new incentives, the German unemployment rate is still relatively high but falling

Retraining workers and carefully selecting individuals for certain jobs is not cheap, and the German workers pay for it. However, the German labor force is changing, and now the workers pay less.

Structurally, the German and U.S. labor markets are different, where German unemployment is almost two times that in the U.S. The average German unemployment rate over the last ten years is 8,8%, while it is 4,9% in the U.S.. But the government’s reduction in unemployment taxes (6,5% to 4,2%) spurred a drastic downward shift in the unemployment rate over the last 2 years.

Germany is struggling like any other economy during this banking crisis. However, what Germany has that the U.S. doesn't is a strong labor market. With its growing labor income and number of jobs, German consumption is set to rebound quickly as inflation abates and investor confidence returns.

A simple conclusion

I don’t see Germany moving away from government sponsored work programs anytime soon, but it is nice to see a little added incentive via reduced taxes. Compared to the U.S., it is relatively socialized, but definitely shifting right.

Rebecca Wilder

1 comment:

  1. A friend has two German grandsons and it has been interesting to hear how they have grown up. Isn't the mandatory 3 yr.(?) service part of it? One boy worked in a nursing home and is now in medicine.