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Challenges The German Economy Is Facing Under The Current Government

1104 words - 4 pages

The natural rate of unemployment in GermanyChancellor Schröder is confronted with multiple problems in Germanys current economic situation:* Rising unemployment numbers* High "non-wage-labor costs" of 42%* Inefficient and too expensive public servicesTo really combat unemployment efficiently, Schröder has to tackle all three main factors influencing the rise in unemployment in Germany (as in all European countries):1. The natural rate of unemployment2. The frictional unemployment3. The structural unemploymentThese three factors are mainly due to:1. shift in demand towards better skilled employees, because of technological change and the generous unemployment programs. Higher unemployment is also due to the current general down-turn in the European and world economy.2. difficulties in matching workers with appropriate jobs3. wage rigidity and union powerSchröder's "Agenda 2010 tries to affect two dynamic parameters of our "unemployment model" basing on the natural rate of unemployment::f should be positively influenced by:1. Enhancing the job search through:a. Cutting unemployment benefits, in order to motivate people to really look for a jobb. Lowering hurdles for craftsmen to start on their own, by abolishing the "Meister" requirementc. Making governmental employment agencies more effectived. To be more supportive to the entrepreneurship2. Loosening wage rigidity through:a. Easing job protection with a choice between fixed compensation and court recourse allowing small companies more flexibility to hire and fire.b. Adjusting wages to their appropriate equilibrium through collective bargain-ing, making labor less expensiveThis may lower s with the employers having to cut costs on the other hand.Further measures are taken by reforming the educational system, in order to prepare new and current workers for the higher requirements asked in our technically more sophisti-cated economy, in the sense of the sectoral shift.Not mentioned in the article from the Economist are any efforts to alter the monopoly power of unions and the "slaughter of another holy-cow", the cut of wages for less-skilled workers to equilibrium level.Long-term output in GermanyApplying the rules of the Solow-model policymakers should increase national savings to move the economy towards the Golden Rule steady state with its maximization of con-sumption per worker.The most direct way for the government to affect national saving is through public saving.Schröder is trying to achieve this by :1. Lowering the (big) budget deficit, at least to the required 3% deficit limit in the Euro-zone2. Cutting government expenditures3. Holding to a constant tax policyThese would stimulate investment in the long run and thus positively influence unemploy-ment as well as technological improvement, hence enhancing...

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