A Review of Unemployment Rates in the U.S. and Germany

The U.S. employment stood at 9.5% as of June this year, according to BLS.  After reaching a peak of 10.1% in October last year, the rate has steadily declined but continues to stay above 9%. Since 2005, the lowest unemployment rate recorded was 4.4% in 2006 and in early 2007. Currently 14.6 million Americans are unemployed as per official figures.

In a NY Times Op-Ed piece on August 2nd, the Treasury Secretary Timothy Geithner  mentioned: “Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.”

From a Bloomberg article the next day:

“Treasury Secretary Timothy F. Geithner said U.S. unemployment may rise again before it falls and the economy isn’t recovering rapidly enough.

“It’s possible you’re going to have a couple months where it goes up,” he said on ABC’s “Good Morning America” program. “People start to come back into the labor force, and that can cause the measured unemployment rate to go up temporarily.”

The U.S. economy grew at a slower-than-expected 2.4 percent pace in the second quarter as consumer spending slowed, according to Commerce Department data. Companies probably added about 90,000 jobs in July, according to the median estimate in a Bloomberg News survey before the Labor Department’s Aug. 6 employment report. The jobless rate is forecast to rise to 9.6 percent from 9.5 percent.”

Compared to the unemployed rate of 9.5%  in the U.S., the unemployment rate in Germany stood at just 7.6% in July. From a high of over 12% in 2005, the German unemployment rate steadily declined till 2008 and then increased during the global financial crisis but still stayed under 9%.  A New York Times article titled “In Germany, a Broad Recovery Is Under Way” credits Germany’s rising demand for labor to the unique government incentive program called the short work program. From the article:

“Surging earnings, also reported in recent weeks by companies like the chemical maker BASF and Deutsche Bank, partly explain why German hiring is bouncing back. But the jobs recovery also has roots in the changes that Germany has made to its labor market, and to the lessons that German companies learned from past crises.

For example, Trumpf, a machine-tool maker in the south German city of Ditzingen, managed to get through the recession without laying off any of its 4,000 German workers. In the United States, Trumpf laid off 90 of the 650 workers.

Why the difference? Part of the answer is that, in Germany, Trumpf could take advantage of government incentives to reduce worker hours rather than lay off people, a system known as short work. In the program, the government gives workers partial compensation for the lost wages.

“We wanted to keep our well-trained people on board,” the Trumpf chief executive, Nicola Leibinger-Kammüller, wrote in an e-mail. “Short work helped a lot.”

Many larger German companies also resorted to short work. Siemens, which at one point had 19,000 German employees on reduced hours, said last week that all were back working full time again. Siemens has 128,000 employees.

It may even turn out that short work improved German competitiveness by encouraging workers to use the free time to improve their skills.

Gabrieli Kiesel, quality expert at a Siemens plant in Erlangen, Germany, that makes factory automation equipment, used the extra day off each week to qualify as a meister, or master, in his specialty. He said he could live with the reduced pay, which amounted to 85 percent of his previous wages for a four-day week.

“All in all, short work was a very good solution for me,” Mr. Kiesel, 33, said. “Without it I would have been more fearful about losing my job.” ”

The chart below shows the comparison of monthly unemployment rates between U.S. and Germany since January 2005 thru June 2010:

Click to Enlarge


Source: http://www.destatis.de, BLS

In addition to the unique short-work program, other factors such as strict immigration policies have resulted in keeping the majority of workers employed in Germany. For example, in the last few years lesser than 700 qualified foreigners have made Germany their home. From an article in Der Speigel:

“As with similar debates in the past, however, the call for an increase in the number of qualified immigrants coming to Germany has been met with resistance. On Tuesday, a spokesman for Chancellor Angela Merkel said the chancellor does not currently see a need for a change in the laws currently governing immigration to Germany.

Furthermore, Frank-Jürgen Weise, who heads up the country’s unemployment office, the Federal Employment Agency, said that, instead of bringing in more foreigners, one should focus on domestic workers. “The existing potential in the country should be used first,” he told the Financial Times Deutschland. “We cannot allow a situation wherein people are jobless just because their talents are not being used properly.”

The current back-and-forth is just the most recent manifestation of a debate that has periodically flared up in Germany over the last decade. In 2000, the center-left government of Chancellor Gerhard Schröder introduced a “green card” system in an effort to streamline the immigration of IT specialists. Despite the need for computer experts, however, opposition to the plan was intense, with Jürgen Rüttgers, then campaigning to become the governor of North Rhine-Westphalia, coining the phrase “Kinder statt Inder” — “children instead of Indians” — to indicate his preference for training Germans rather than opening up the borders to foreigners.” (emphasis added)

In contrast to Germany, despite the millions of Americans currently unemployed, the U.S. allowed the entry of 85,000 foreigners under the controversial H1-B visa program for skilled workers in 2009. This included 65,000 visas, the maximum allowed under the general category and 20,000 under the “advanced degree” exemption category. As early as December last year the U.S. Citizenship and Immigration Services received enough petitions to fill the same quota for the fiscal year 2010. The agency has also received some 26,000 petitions till last month towards the fiscal year 2011 general quota. In the “unskilled” category occupations, American workers have to compete not only with other Americans but also with the millions of illegals in this country. Commenting on the broken immigration system, President Obama states on his website:

“In the end, our broken immigration system affects more than a single community; it affects our entire country. And as we continue to strengthen our economy and jump-start job creation, we need to do so with an immigration system that works, not the broken system we have now.”

It is about time that this administration take a hard look at our immigration policies and implements comprehensive reforms to put American back on the right track.

Related articles:
Outsourcing to India Draws Western Lawyers
The German Unemployment Story is Better than the NYT Suggests
U.S. To Train 3,000 Offshore IT Workers

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