Economic Lessons From Germany

I've been reading this article from the Tuesday NY Times, 9/25/12.  Its headline is "A German Job Problem Is Finding Workers."  Hey, I think, that should only be our problem.

Then, half way through the article, the paper spills the beans.   It explains that a big factor in bring down the jobless rate from 13% in 2005 to a figure of less than 7% today was a steep cut in jobless benefits.  In addition, laws were passed making it "easier for companies to hire temporary workers with fewer protections against dismissal."

In short, "(increased employment) came at the expense of the comfortable but costly social benefits many treasured.  People had to give up the security of a guaranteed long-term income if they became unemployed.  They faced more pressure to take jobs they did not want.  Even better paid workers had to make do with meager pay raises."

I imagine that would sound pretty awful to most people.  But, consider the upside.  Germany is financially solid.  What entitlements it does grant can be relied upon.  And, it is to Germany that countries like Greece and Spain look to for money to shore up their banks.

Greece and Spain are not just names.  They are lands occupied by people who are rioting because they don't have jobs and they are finding their retirement benefits being cut.  Bad deals are always being made.  It they're made between companies, one company will profit and one will suffer.  If a deal is made between workers and companies at the behest of the government, and it's a bad deal for the worker, the companies will profit.  If it's bad deal for the companies and a good deal for the worker, the company will suffer and the worker will profit  ---- but only in the short term.  In the long term, the worker will also suffer.

This is what Germany and its workers understood.  The rejiggered deal between companies and workers allowed companies to be a little more profitable, and left many workers with less than they might have hoped for.  In the long run, however,  everyone won.  Workers can now find work and companies can now compete.

This is a lesson never learned by Greece and other European countries.  The workers choose to give back nothing peacefully, the result is stagnation and joblessness.  Ultimately, this economic lesson must be learned.  There's really no escaping it.  But the sooner the lesson is learned the less painful it is to bear.