Germany's Unemployment Rate Hits Five-Year High

There used to be a time when German Chancellor Gerhard Schröder had high hopes for cutting the country's unemployment rolls. He talked of cutting the total to 3.5 million and urged voters to measure his performance by this standard before they went to the polls in 2002.

His high hopes also once seemed to be shaping up into real gains. At the end of 2000, the chancellor looked back on a period in which around 550,000 people joined the working world starting in late 1999. And he could look confidently ahead at more gains, fueled by a blend of tax breaks and other measures he had pushed through.

Barely two years later, Schröder can only look with horror at the numbers. On Wednesday, he and the rest of the country learned that the number of jobless people climbed to 4.623 million in January. It was the highest figure for the month in five years and a total that amounts to more than the entire population of the eastern German state of Saxony. Within a month, the country's unemployment rate jumped 1 percentage point, to 11.1 percent, as 398,000 people lost their jobs.

Slump, weather blamed

Florian Gerster, the head of the German Labor Office in Nürnberg who had the task of spreading the bad news, blamed the increase on the winter weather and the country's slumping economy. Gerster also offered little hope that the situation would change soon. Instead, he said an improving economy would not help the economy until year's end.

The numbers sent a shock through the country. "It is clearly worse than expected," Andreas Scheuerle of the DekaBank told the Reuters news agency. "Those are horrible numbers."

Angela Merkel, who leads the opposition Christian Democratic Union, said Germany needed a powerful push to overcome the problem. "And the federal government must provide this powerful push," Merkel said.

Wolfgang Clement, the Social Democratic economics and labor minister charged with bringing down the numbers, responded to the report in a more sober language. "The numbers show that the weak economy and the pressing structural problems continue to have an effect on the economy," he said.

Analyzing the problems

To Holger Schäfer of the Cologne Institute for Business Research, the growing numbers are nothing new. For years, economists like him have been analyzing the problems of the German job market and been coming to similar conclusions. Part of the current problem, these economists know, lies beyond the control of the government. When the economy falls into a slump, employment suffers, Schäfer said. And the German economy has been in the doldrums for two years. It grew 0.6 percent in 2001 and about 0.2 percent last year, according to the German Statistics Office in Wiesbaden.

The second set of problems, however, has little to do with the ups and downs of a country's economy. Instead, they are caused by Germany's highly regulated job market, Schäfer said. In this environment, job creation sometimes becomes "the course of last resort," he said.

One reason that employers are reluctant to hire people is the non-labor costs associated with their employment, he said. "These costs know only one direction -- up," Schäfer said. The costs, generally shared on a 50-50 basis between employer and employee, cover such things as health insurance and payments into the country's pension system. This January, the pension payments climbed from 19.1 percent of gross pay to 19.5 percent. Some officials expect that they will climb once again this year. Many people also are paying higher health insurance premiums as the deficit of the public health funds climbs.

Regulations on layoffs

Beyond these money issues, other regulations make employers reluctant to hire workers, Schäfer said. One such regulation defines procedures that employers must follow when they decide to lay off someone. Among other things, these rules regulate the notification period for layoffs and the payment of severance pay. In larger companies, employers also must consult the workers' council, which represents employee interests in a company, before they can lay off workers.

A change in these regulations would allow employers to dismiss employees more easily during bad times, he said. But "they could hire people more quickly during good times," Schäfer said.

Clement, as he noted Wednesday, recognizes the need for structural reforms and has suggested relaxing this law to make it easier to dismiss and hire workers. But he encountered immediate opposition from many of Germany's unions, which are heavily represented in Clement's Social Democratic Party. In the wake of Wednesday's unemployment report, the head of the German Trade Union Federation continued to raise objections the such ideas. "I can only advise people to keep their hands off such superficial, knee-jerk reactions," Michael Summer said.

Change in statistics planned

Clement is also planning to introduce one sure-fire way to cut the rate: He plans to base Germany's unemployment rate on European Union standards. The centerpiece of the change will be that officials will count only those unemployed people who are available to take jobs. Under Germany's rules, a person is considered to be unemployed if he or she works less than 15 hours a week and is registered with the country's labor office.

Officials said the change was necessary in order to create a universal standard within the European Union. The change is expected to cut the total by more than 1 percentage point.