The 2012/11/30 at 09:06
Marie Luginsland, in Germany
A few early alarm bells have perturbed the optimism of German businesses in the last two years. These include a climb in production costs since the start of the crisis, unparalleled elsewhere in Europe. Paradoxically, Europe’s most industrialised country –
20 % of its GDP is based on industrial production – is the one to have lost the most competitiveness between 2008 and 2011. Yet the Germans’ most fearsome competitors are neither the Asians nor the South Americans. At the heart of the European market, which represents 40 % of German exports, it is now the Spanish, the Greeks and the Irish who threaten to be mid-term competitors for German businesses. While Unit Labour Costs (ULC*) in all sectors ballooned in Germany by 8.7 % between 2008 and 2011, they dropped by 4.4 % in Spain and 6.3 % in Ireland. Greece has also managed to cut its ULC by 5.5 % between 2010 and 2011. These countries more severely affected by the crisis than others have succeeded in implementing measures favourable for their competitiveness. The trend is even more striking for industrial products: while Germany’s ULC in this sector climbed by 15 % between the first quarter of 2008 and the fourth quarter of 2011, costs diminished by almost 25 % in Greece and 10 % in Spain. In Ireland, these costs are today 41 % lower than their 2008 rate!
Since the onset of the crisis, German industrial firms have even been taken over by their British, French and Italian counterparts in terms of competitiveness. The ULC for industrial products is respectively 15 % lower in Great Britain, 10 % lower in France and 5 % lower in Italy than in Germany. These figures, published at the height of summer by an independent New York-based research association, The Conference Board, had a bombshell effect in Germany. Ever since, German economic institutes have not ceased to speculate on the possible reasons for the cost increases affecting German products. Should they be seen as a consequence of the rise in labour costs and/or a drop in the productiveness of German employees? It is a fact that gross salaries, kept under pressure for over one decade, have increased by 3 % in the past year. However, according to Bert Colijn, co-author of the Conference Board survey, “these new salary rise agreements in the German industrial sector will not have any immediate effects on German competitiveness as we are in the presence of high added-value production that is extremely specialised in certain sectors. In other words, one that can hardly be compared with that of many other European countries. But this may become a long-term problem if Germany does not invest in its innovation to preserve its technological advance.”
Greater job market flexibility
Indeed, countries in southern Europe are not the only ones to have made efforts in this direction. Apart from the Baltic States and Hungary which have increased their costs, Western countries including Great Britain and the Netherlands have managed to control their evolution. As pointed out by the Conference Board survey, the countries that have managed to have an influence on their industrial production costs are also the ones to have the most deregulated job markets. To prove their point on poor German performance in terms of costs, the authors cite the introduction of Kurzarbeit – a system of reduced working hours and pay – in 2009. This system making working hours more flexible, comparable to a form of redundancy – aimed to avoid waves of retrenchment at the height of the crisis. While Kurzarbeit has reduced unemployment on the one hand, it has, on the other hand, contributed to the rise in ULC. This observation is worrying at a time when, according to the industrial union IG Metall, several industrial groups – namely in the automobile industry – are gearing up to take recourse to the short-time system at the start of next year.
* unit of measurement for measuring a company’s competitiveness.