During his election campaign in 1972, the German chancellor Helmut Schmidt
said he would prefer 5% inflation to 5% unemployment.
However, the situation
in Germany has shown that price stability and low rates of unemployment can
be compatible, despite what the Phillips curve might otherwise suggest. The
average historical unemployment rate in Germany stands at 7.9%, largely
because of its long-standing and relatively generous social security system.
Although this may be above the OECD average of 7%, it is still well below the
average for Germany’s larger European neighbours.
Thanks in particular to its system of social partnership and Hartz labour reforms,
the job market in Germany has weathered the slump in growth resulting from the
global financial crisis much better than other OECD countries. Since the fourth
quarter of 2007 the employment rate in Germany has risen by 4.8 percentage
points, the highest increase among all the industrialised countries and a much
stronger improvement than in Japan (3.1%) and the OECD as a whole (up by
0.2 %-points, USA down by 2.4 %-points).
At below 7%, Germany’s low rate of
youth unemployment is particularly impressive and stands up well to
international comparison (Netherlands 10.5%, France 26%, Italy 36%, and
Spain 43%). The German ‘dual system’ model of vocational training, in which
apprentices split their time between work and the classroom, plays a big part in
this and is now being exported around the world.