Yup, we really should copy the Germans
IT’S one of those things in the air, you’ve noticed I hope? All these pieces floating around saying that as Germany has low unemployment then we should obviously be doing what Germany has done in order to have low unemployment.
And yes, seems fair enough really. Thing is, you’ve got to work out what it is that Germany has done before you can copy it. And it isn’t as simple as seeing that Germany has apprenticeships so we should, or that Germany has manufacturing, so we should have manufacturing. These are like noting that Germany speaks German so we should speak German.
The big influence upon unemployment is the price of labour. No, not wages paid, but wages paid as compared to what is produced with that labour. In the jargon of economics, the unit labour cost.
You can see from IMF data that the silent coup took place in the fat years of the global boom when Germany forced down unit labour costs; -1.7pc in 2003, -4.0pc in 2004, -3.3pc in 2005, -1.8pc in 2006.
And what was happening in the UK at that time?
UK average wages were rising 4-5% during that period nominal, 2-3% real, for comparison.
And there we have it. Germany’s success is because they screwed down the workers’ wages. In order for us to have Germany’s success we need to screw down the workers’ wages.
Which is of course what is happening as we have inflation and no pay rises. And My God, aren’t people screaming about it?