Kopenhagen, October 5, 2018 Germany, the Euro and a new economic theory Prof. Dr. Heiner Flassbeck www.makroskop.eu
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2016 Redistribution favouring high employment? Unemployment and wage share 2) in the western world 3) 56% 10 55% 9 54% 8 53% 7 52% 6 51% Unemployment (right axis) Compensation 5 50% 4 49% 3 Unemployment rate in percent of active population; 2) Compensation of employees in percent of nominal GDP; 3) GDP-weighted average figures of Germany, France, Italy, Spain, UK, Sweden, Denmark, Finland, USA and Canada Source: AMECO
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2016 In the US: No change in the pattern of unemployment but lower wage share Unemployment and compensation 2) in the US 59% Compensation 12 56% 10 53% 8 50% 47% Unemployment (right axis) 6 4 44% 2 Unemployment rate in percent of active population; 2) Compensation of employees in percent of nominal GDP Source: AMECO
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2016 In Europe: A much lower wage share but very high unemployment Unemployment and wage share 2) in Europe 3) 59% 56% Unemployment (right axis) 12 10 53% 8 50% 6 47% Compensation 4 44% 2 Unemployment rate in percent of active population; 2) Compensation of employees in percent of nominal GDP; 3) GDP-weighted average figures of Germany, France, Italy, Spain, UK Source: AMECO
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2016 in percent of active population Why did Europe fail so miserably? Unemployment 12 10 Europe 2) 8 6 4 2 United States 0 Unemployment rate in percent of active population; 2) GDP-weighted average of Germany, France, Italy, Spain, UK Source: AMECO
Ratio in % of working population With an unchanged wage share the US performs much better than Europe Unemployment in different countries 14 EMU 2) 12 10 8 6 Japan USA 4 2 2009 2011 2013 2015 2016 2017 Ratio of unemployed to working population, saisonally adjusted, harmonized. 2) 18 EMU-countries. Source: Eurostat
Ratio in % of working population But Germany seems to refute Unemplyoment in the EMU 13 11 EMU 2) Italy 9 France 7 Germany 5 3 2009 2011 2013 2015 2016 2017 Ratio of unemployed to working population, saisonally adjusted, harmonized. 2) 18 EMU-countries. Source: Eurostat
2000 2001 2003 2005 2007 2009 2011 2013 2015 2016 Index 2000 = 100 Are real wages lagging behind productivity the recipe for success? 120 Real wages and productivity 2) per hour in Germany 118 116 Productivity 114 112 110 Real wages 108 106 104 102 100 Gross income from employed labour, price-adjusted with GDP deflator, per hour worked by employees, 2000 = 100; Value for 2016 of the average number of hours worked by employees has been estimated 2) Real gross domestic product in national currency per hour of employment, 2000 = 100 Source: AMECO, OECD
2000 2001 2003 2005 2007 2009 2011 2013 2015 2016 Index 2000 = 100 Did France miss the right economic theory? 120 Real wages and productivity 2) per hour in France 118 116 Real wages 114 112 110 Productivity 108 106 104 102 100 Gross income from employed labour, price-adjusted with GDP deflator, per hour worked by employees, 2000 = 100; Value for 2016 of the average number of hours worked by employees has been estimated 2) Real gross domestic product in national currency per hour of employment, 2000 = 100 Source: AMECO, OECD
Muss man wie Deutschland zugunsten der Reichen umverteilen, um die Arbeitslosigkeit zu bekämpfen?
1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Lag Frankreich mit einer Politik des Ausgleichs ganz falsch? Income Inequality (share of pre-tax national income) 50% 45% Middle 40% 40% 35% Top 10% 30% 25% Bottom 50% 20% 15% Source: WID
1999 2000 2001 2003 2005 2007 2009 2011 2013 Arbeitslosenrate in % Reallohn pro Stunde (in 2005er Preisen) Warum war Griechenland nicht erfolgreich mit seiner drastischen Reallohnsenkung? 30 22 25 20 Reallohn pro Stunde (Produzentenlohn) 2) 20 18 15 16 10 Arbeitslosenrate 14 5 0 Reallohn pro Stunde (Konsumentenlohn) 3) 12 10 Arbeitslose in %, im Verhätlnis von beschäftigten zu unbeschäftigten Personen; Definitiert von Eurostat, linke Skala 2) Vergütung von Angestellten pro tatsächlich gearbeiteter Stunde; BIP-Deflator einbezogen, rechte Skala 3) Vergütung von Angestellten pro tatsächlich gearbeiteter Stunde; Deflator für privaten Verbrauch einbezogen, rechte Skala Quelle: Ameco (Mai 2013), Werte für 2013 sind Schätzungen der EU-Kommission.
1999 2000 2001 2003 2005 2007 2009 2011 2013 2015 Index 1999 = 100... In particular not since the Beginning of EMU Productivity 125 120 115 France 110 Germany 105 100 Real gross domestic product in national currency per hour of employment, 1999 = 100 Source: AMECO
Ø annual rate of change of ULC in % The relevant relationship: Wages determine prices not employment 18% Inflation (CPI) und ULC Growth in different countries, 1970-1990 and 1990-2016 16% 14% 12% R² = 0,9719 10% 8% 6% 4% 2% 0% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Ø annual rate of change of CPI in % Source: Ameco; Apart from Switzerland all countries are marked with two dots for the given period of time. Japan ab 1980. CPI stands for consumer price inflation.
Ø annual rate of change of ULC in % Even better by using the GDP-Deflator 18% Inflation (GDP) und ULC Growth in different countries, 1970-1990 and 1990-2016 16% 14% 12% R² = 0,9887 10% 8% 6% 4% 2% 0% -2% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Ø annual rate of change of GDP in % Source: Ameco; Apart from Switzerland all countries are marked with two dots for the given period of time. Japan ab 1980.
1999 2000 2001 2003 2005 2007 2009 2011 2013 2015 Index 1999 = 100 But Germany is cheaper 135 ULC 130 125 France 120 115 110 Germany 105 100 95 90 Gross income from employed labour in national currency (euro) per employee in relation to real gross domestic product per employee; 1999 = 100 Source: AMECO
2000 2001 2003 2005 2007 2009 2011 2013 2015 2016 2017 Index 2000 = 100 Real effective exchange rates 130 Italy 120 110 France 100 90 Germany 80 70 60 50 2000 = 100, based on unit labour costs (total economy); Performance relative to the rest of the former EU-15: double export weights Source: AMECO
2000 2001 2003 2005 2007 2009 2011 2013 2015 2016 2017 Index 2000 = 100 World Export Shares (Goods) 130 120 Germany 110 100 90 Italy 80 70 60 France 50 2000 = 100 Source: IMF, Direction of Trade Statistics
1999 2000 2001 2003 2005 2007 2009 2011 2013 Index 1999 = 100... Germany is too cheap in comparison to the inflation target 150 Greece Italy 140 130 Spain France 120 ECB target: 1.9% 110 100 Germany 90 Ratio of compensation per employee to real GDP per person employed; Index 1999 = 100 Source: AMECO. Geneva and Zurich, February 2015
1999 2000 2001 2003 2005 2007 2009 2011 2013 2015 2016 Index 1999 = 100 and absurdly forces the others to deflationary adjustment ULC in Euro 140 135 Inflation EMU (CPI) 130 125 EMU w/o Germany 2) Inflation target 1.9% 120 115 110 105 Germany 100 95 90 Gross income from salaried employment in national currency per employee in relation to real gross domestic product per employee; Index 1999 = 100; 2) ULC growth rates of member countries weighted with GDP Source: AMECO
1999 2000 2001 2003 2005 2007 2009 2011 2013 2015 2016 2017 In % of GDP... Germany s success is of a mercantilist nature Current account balance of Germany and France 10% 8% 6% 4% Germany 2% 0% -2% France -4% In % of GDP; 2017: Estimates of the commission Source: AMECO
1999 2000 2001 2003 2005 2007 2009 2011 2013 2015 in % of GDP Its financial balances are unsustainable Currenct account balance of economic sectors In Germany 8 6 Private households 4 2 Companies 0-2 -4 Government -6-8 Foreign countries 2) -10 In % of nominal GDP; 2) Negative values mean foreign debt Source: AMECO
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 in % of GDP... once upon a time Germany has been a true market economy 10 8 West Germany 1960-1975 Private households 6 4 2 0-2 Foreign countries 2) Government -4-6 Companies -8-10 As a percentage of nominal gross domestic product 2) Negative values mean foreign debt Geneva and Zurich, February 2015 Source: Deutsche Bundesbank, Ameco.
Critical Analyses on Politics and Economics Visit us at www.makroskop.eu Publisher: Prof. Dr. Heiner Flassbeck & Dr. Paul