August 3, 2010
In Germany, a Broad Recovery Is Under Way
By JACK EWING
FRANKFURT — Norbert Reithofer, the chief executive of BMW, often boasted that he was among the first to start trimming jobs in 2007 when he saw a downturn coming in the automobile industry.
On Tuesday, BMW hung out the help-wanted sign after reporting that its net profit rose more than sixfold in the second quarter.
German exports are booming again and so is employment. The country’s unemployment rate is 7.6 percent, almost at the pre-crisis level, and down from 9.1 percent in January. Companies, including the electronics and engineering giant Siemens, the truck maker MAN or the carmaker Daimler, are ramping up worker hours. BMW said it was seeking 1,000 people in Germany to work in research and development as well as purchasing and sales.
As a country adding workers, Germany’s image stands in stark contrast to five years ago when unemployment was above 13 percent, more than five million people were jobless and the country was a symbol of labor-market inflexibility.
Germany’s unexpectedly strong economy is generally considered good news for the rest of Europe, which depends on German demand for its goods. So is the drop in joblessness, which should help increase consumer confidence and encourage Germans to take vacations in Spain and Greece, channeling euros to two places that need them.
But Germany’s success is also a significant point of contention with leaders in France and other countries who believe that some of it comes at their expense. Germany exports far more than it imports, in part benefiting from easier access to credit than in the heavily indebted countries.
Some economic experts argue that Germany’s economic policies are exacerbating tensions in the euro zone. “By cutting its budget deficit and resisting a rise in wages to compensate for the decline in the purchasing power of the euro,” George Soros, the prominent investor, wrote in a recent essay in The New York Review of Books, “Germany is actually making it more difficult for the other countries to regain competitiveness.”
Within Germany, there is a different set of questions about how long the export boom can last and when German workers, who have been remarkably restrained in wage demands, will start to clamor for a bigger share of corporate profits.
“Fear of unemployment made workers more willing to accept concessions,” said Ralph Solveen, a senior economist at Commerzbank in Frankfurt. “That will certainly change in the next few years.”
Amid the celebrating in German boardrooms, there is also nervousness about how long demand in Asia can continue to compensate for slower growth in Europe.
“Naturally, we are pleased about the additional tailwind the economic upswing in some countries is providing us,” Mr. Reithofer, BMW’s chief executive, said on Tuesday. He added a note of caution, though, saying that the business environment remained uncertain.
BMW, based in Munich, said Tuesday that its sales in China had doubled so far this year, helping profit in the second quarter rise to 834 million euros ($1.1 billion), compared with 121 million euros in the same quarter a year ago. BMW’s sales also rose 6 percent in the United States, and a weaker euro raised the value of the company’s dollar-denominated revenue.
Surging earnings, also reported in recent weeks by companies like the chemical maker BASF and Deutsche Bank, partly explain why German hiring is bouncing back. But the jobs recovery also has roots in the changes that Germany has made to its labor market, and to the lessons that German companies learned from past crises.
For example, Trumpf, a machine-tool maker in the south German city of Ditzingen, managed to get through the recession without laying off any of its 4,000 German workers. In the United States, Trumpf laid off 90 of the 650 workers.
Why the difference? Part of the answer is that, in Germany, Trumpf could take advantage of government incentives to reduce worker hours rather than lay off people, a system known as short work. In the program, the government gives workers partial compensation for the lost wages.
“We wanted to keep our well-trained people on board,” the Trumpf chief executive, Nicola Leibinger-Kammüller, wrote in an e-mail. “Short work helped a lot.”
Many larger German companies also resorted to short work. Siemens, which at one point had 19,000 German employees on reduced hours, said last week that all were back working full time again. Siemens has 128,000 employees.
It may even turn out that short work improved German competitiveness by encouraging workers to use the free time to improve their skills.
Gabrieli Kiesel, quality expert at a Siemens plant in Erlangen, Germany, that makes factory automation equipment, used the extra day off each week to qualify as a meister, or master, in his specialty. He said he could live with the reduced pay, which amounted to 85 percent of his previous wages for a four-day week.
“All in all, short work was a very good solution for me,” Mr. Kiesel, 33, said. “Without it I would have been more fearful about losing my job.”
Klaus F. Zimmermann, president of the German Institute for Economic Research in Berlin, called short work “the most important stimulus program.”
“You couldn’t generate exports; you couldn’t make the U.S. buy German products,” Mr. Zimmermann said. “You could support the work force.”
German wage growth, though, has been nearly stagnant for the last decade, in part because companies increasingly used temporary workers during periods of high demands. Major cuts in unemployment benefits also increased the incentive for people with fewer skills to take low-paying jobs. The changes, in 2005, were the beginning of the turnaround in the job market but are still a sore point with labor representatives.
“There are more and more people who earn very little or too little,” said a spokeswoman for IG Metall, which negotiates wages for 3.4 million workers in the metal and electronics industries, including Siemens. Workers are dismayed that their tax dollars were used to finance a bank bailout, but they are seeing little benefit for themselves while corporate profits soar.
Still, the union emphasized job preservation, agreeing to keep wages unchanged this year except for a one-time payment of 320 euros.
Walter Huber, head of personnel at Siemens in Germany, said he believed employer groups and unions would continue to cooperate. “We have developed a good basis for dialogue,” he said. “That makes me optimistic.”