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Unemployment in Germany and France: A Comparison

Unemployment is a problem dealt with by the solid majority of countries around the globe. It is a metric closely tied to the satisfaction of the populace, and every country in the developed world seeks to reduce its unemployment rates as much as possible. The way countries try to accomplish this varies, and even in a unified federal system of countries like the EU, unemployment rates and the methods of dealing with them vary widely between countries. Even though France and Germany are both part of the EU and even border each other, macroeconomics.com shows them as having significantly different unemployment rates, with Germany at 3.04% in 2019, and France approaching three times that at 8.43%. What is the cause of this large discrepancy in unemployment rates? It comes heavily down to political culture and the ways each country attempts to deal with its employment.

The two graphs below illustrate the difference in unemployment trends between 2000 and 2018 in Germany (left) and France (right). The graphs show two very different trends. Germany’s unemployment peaked in 2005 and has since been working its way downward, while France’s unemployment has been all over the place, and has only started trending downward as of 2015:

GDR Unemployment Trends France Unemployment Trends

Part of this is attributable to the worldwide recession that began in 2008, which barely affected Germany’s unemployment but caused France’s to jump close to 2% in one year, but it doesn’t explain the consistent nature of Germany’s decline in unemployment compared to the erratic rise and fall of France’s. What are the differences in approach that led to these different outcomes?

Something to consider is the attitudes of Germans that have been inherited from post-WWI conditions. The treaty of Versailles left Germany in a huge amount of debt, and inflation skyrocketed. In 1914, the German francs were exchanged at a rate of around four or five per US dollar. In 1923, the exchange rate was one trillion marks to one dollar, and  “a wheelbarrow full of money could not even buy a newspaper” (Smith). Germany eventually recovered from this extreme hyperinflation, but the fear of inflation has tinged a lot of their economic decisions. This helps to explain why the Germans weren’t as adversely affected by the 2008 recession: their fear of inflation had kept them from making risky investments, so the housing market crash didn’t hit them as hard. While France next door was struggling to keep their economy together, Germany was able to continue to strengthen theirs.

As high as the discrepancy is between German and French unemployment right now, that discrepancy is much more pronounced when it comes to unemployment of youth. In France, the youth unemployment rate was 19.15% (France unemployment rate) compared to 5.42% in Germany (Germany unemployment rate). In France, the minimum wage is very high and a poor education system leaves a lot of young people unskilled. In a welfare state like France, this leaves little reason for businesses to hire young people, so there remains a lot of older people filling the available positions. The benefits of France’s welfare programs make reforming this system difficult. In 2006, a proposal to allow employers to get rid of their younger employees within two years on the job was met with protest in the streets by the very young people who were struggling to find work (Roskin). This lack of willingness to change has left France in a bind.

The lack of skilled labor is also a big contributing factor to the rise of French unemployment. Many of the companies looking for people to hire can’t find people skilled in the fields they need (Thomas). Part of the reason for this is the nature of higher education in France: most of the public universities teach liberal arts, which doesn’t really make graduates more fit for skilled labor (Raskin). Germany splits its students relatively early into two educational paths, one for future white-collar workers, and one for future blue-collar workers. Though many would argue that Germany’s method is more discriminatory and forces people into a particular path before they’re old enough, for the purposes of employment it does a much better job than France’s system for creating employees well-suited for different industries.

Though Germany has a lower unemployment rate than France, they face a problem that is unique to them: unemployment is higher in East Germany than West Germany. This is primarily due to the reunification of West and East Germany at the end of the Cold War. West Germany had a strong free market, which overwhelmed East Germany’s struggling communist economy, causing it to collapse (Raskin). In the nearly twenty years since, East Germany has struggled to keep up with the West. There are differing opinions as to why. Some say that strong welfare policy is preventing East Germany from competing in the market, while others say that it is because there is too much supply for too little demand in the East (Hall & Ludwig). This has improved over time however. According to a Pew Research Center article, there was a 10% gap between the two in 2004; in 2018, the gap is only 2%.

Something both Germany and France share in common with each other and the rest of Europe is their strong welfare states. Maintaining low unemployment in a welfare state is difficult. The policies designed to protect people in the workforce can also work as barriers of entry into the workforce. High wages and generous severance pay make hiring a more risky endeavor than in less welfare-driven countries like the US. Reforming these policies is notoriously difficult as well. Employees like being treated well, and they tend to protest at the suggestion of reducing their benefits. Germany has been able to make some of the sacrifices necessary to become more competitive, but France has struggled to accomplish economic reform. For citizens in the workforce, the reforms necessary to combat unemployment reduce their quality of life without giving them as individuals anything in return. In 1996, Germany’s parliament cut health, employment, and welfare benefits to try to help out the economy. Though the citizens fought it, the policies stuck, and this helped Germany to survive the recession (Raskin).

Part of the reason Germany is better than France at making legislative changes is the way their party systems work. Though both are currently multi-party systems, Germany’s system allows for more diverse ideas in politics. The problem with France is that regardless of political party or campaign message, once a politician gets into office they immediately ride the center. (Raskin). The nature of French politics make it very difficult for any kind of changes to be made, so when the economy starts to go in an unwanted direction very little gets done, and the French government ends up riding the rollercoaster until it reaches its destination. This could help to explain the much less consistent trend on France’s graph compared to Germany. When bad times hit Germany, they are better equipped to make the necessary changes to maintain their trajectory.

Germany and France are considered to be two of the strongest members of the European Union. Germany has taken the mantle of leadership in the EU, something that the French are envious of. It is hard to argue with Germany’s place above France, though; Germany is economically better off. Germany had the fourth highest GDP in the world in 2018, behind the US, China, and Japan , and according to tradingeconomics.com, they are ninth in Europe for low unemployment. France is 22nd. There are several reasons for this, including their political cultures following WWII, their political institutions, and their education systems. What seems to play the biggest role in the gap between the two countries, though, is Germany’s more malleable economy. In order for France to be able to keep up with Germany, they need to improve their ability to adapt to changing circumstances.

References

France Unemployment Rate 2000-2020. (2020). Retrieved October 21, 2020, from https://www.macrotrends.net/countries/FRA/france/unemployment-rate

GDP by Country. MacroTrends. https://www.macrotrends.net/countries/ranking/gdp-gross-domestic-product.

Germany Unemployment Rate 2000-2020. (2020). Retrieved October 21, 2020, from https://www.macrotrends.net/countries/DEU/germany/unemployment-rate

Gramlich, J. (2020, August 26). East Germany has narrowed economic gap with West Germany  since fall of communism, but still lags. Retrieved October 21, 2020, from https://www.pewresearch.org/fact-tank/2019/11/06/east-germany-has-narrowed-economic-gap-with-west-germany-since-fall-of-communism-but-still-lags/

Hall, John B. & Ludwig, Udo. (2007). Explaining Persistent Unemployment in Eastern Germany. Journal of Post Keynesian Economics, 29(4), 601.

Roskin, M. G. (2016). Countries and concepts: Politics, geography, culture. Boston, MA: Pearson.

Smith, A. (1982). Paper Money (pp. 57-62). New York, NY: Dell.

Thomas, L. (2018, February 09). As France’s economy takes off, a new problem: Labor shortages. Retrieved October 22, 2020, from https://www.reuters.com/article/us-france-economy-labour/as-frances-economy-takes-off-a-new-problem-labor-shortages-idUSKBN1FT2KG

Unemployment Rate: Europe. Unemployment Rate – Countries – List | Europe. https://tradingeconomics.com/country-list/unemployment-rate?continent=europe.

 

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