Europe's Job Market Lessons for Germany

A "job miracle" seems to have taken place in Britain during the past 10 to 15 years. While the unemployment rate was still more than 10 percent in 1993, that number sank to 4.7 percent by 2004. The United Kingdom managed to cut unemployment in half, in other words.

Things look quite different in Germany: While the Federal Labor Office announced Thursday that unemployment had dropped slightly in March, 5.176 million people still remain without work, resulting in an unemployment rate of 12.5 percent.

Why has Britain succeeded where Germany has failed?

Fewer regulations, more support

"If we knew that, we'd just have to copy them," said Holger Schäfer, a job market researcher for the Institute of German Industry in Cologne. "But basically, there are fewer regulations in Britain than in Germany."

He added that the British government has merged unemployment and social welfare payments and reduced unemployment money -- a step recently taken by the German government with the introduction of sweeping welfare reforms.

But Schäfer also pointed to a major difference between the two systems: While Britain has long been able to rely on a powerful service sector, Germany still needs to deal with an overblown building industry.

Britain's so-called "activation strategy" also played a role in getting people back on the job market, according to Ingo Kolf, a job market expert with the German Trade Union Federation. British job center agents are responsible for fewer clients than their German counterparts, allowing them to spend more time with people.

"That's where we can still learn something from Britain," Kolf said, adding that he's not too hot on the British model in general.

Fudged numbers?

"You cannot compare British and German unemployment figures," he said. "The number of people that have withdrawn from the job market is twice as high as the number of people that are officially unemployed."

When adding the numbers, about 2.5 million people are actually without a job in Britain, Kolf said. "That's not that different from Germany."

The situation in the Netherlands is quite similar, Kolf said. The official unemployment rate is 4.7 percent, but even if the actual situation is worse, Germans can learn something from their neighbors.

A need for flexibility

"People have to become more flexible," he said, adding that 40 percent of jobs in the Netherlands are part-time and temp work is booming. The latter sector has long been decried in Germany for destroying regular jobs. But for the past two years, temp agencies have had to adhere to collective labor agreements and are slowly losing their bad image.

The fact that Dutch workers are more willing to agree to a wage reduction plays a large role in explaining the country's success, according to Schäfer from the Institute of German Industry. In 2003, Dutch unions agreed to forego wage increases while the government took back social welfare cuts. The union's willingness to cooperate worked wonders for the Dutch job market, Schäfer said.

"Labor is simply too expensive in Germany," he added. While productivity remains relatively high, other countries are beginning to catch up, making it harder for companies to justify higher production costs in Germany.

Lowering social security contributions could be a positive signal, Schäfer said.

Lower taxes, fewer loopholes

"Germany's labor law also needs to be cleared up and lowering corporate taxes could help as well," he added.

While union officials wouldn't back these demands, they agree that something needs to be done.

"The tax-social security payments ratio is out of sync in Germany," said Markus Franz, a spokesman for the German Trade Union Federation, adding that Germany's tax rate is effectively the lowest in Europe due to a vast number of ways to claim tax write-offs.

"We're ready to talk about a tax reform," he said. "But the loopholes have to be closed as well."