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France vs Germany

Vladislav Cernouțan

Stockholm School of Economics in Riga

Macroeconomics

21.04.2019
Abstract

This paper aims towards analysing France and Germany’s economic performance. In order to
understand how the economies converged to the current state, relevant macroeconomic variables
will be taken into consideration and a separate analysis for each of them on the countries will be
done. After depicting each country’s performance on a variable, a comparison between both will
be provided. At the end of the report, TO BE WRITTEN Commented [VC1]: To be changed

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Plan

3
4
General State of the Economy

Gross Domestic Product, Growth Rates and Output Gap

Germany

The first variable chosen to analyse a country’s macroeconomic situation is the Gross
Domestic Product level and growth rate. Even though this macro-variable does not provide a full
information regarding the economic situation in a country, it might help us in creating a general
picture of the state of economy and develop our further analysis. Additionally, given vast period
for which the economy will be analysed, the fluctuation and the effect of inflation, the real GDP,
or the GDP at constant prices, will set the foundation for the further analysis. The period of time
considered for the analysis is 18 years, starting from the beginning of millennium III, year 2000.

GDP Germany, billion EUR


3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Figure 1 Chart made by the author using data from IMF (2019)

In the presented graph, GDP is denominated in billions of EURs, the values being presented on
the vertical axis. As it can be seen, the graph is dominated by an upward moving trend and a
quite constant rise, suggesting that the economic stance of the country is a good one. In year
2000, Germany’s GDP stood at 2353 billion EUR. Over 18 years, the country managed to reach

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a GDP value of 2929 billion EUR, which is equivalent to 24.4% increase from the initial value in
the given timeframe. Given these, the average growth rate of the country in the last 18 years is
equal to approximately 1.22% annual growth.
18
1.244 = (1 + 𝑥)18 => 𝑥 = √1.244 − 1 => 𝑥 = 1.22%

The situation from Figure 1 depicts the fact that Germany has gone through a period of constant
growth for the whole timeframe, with a small deviation during the World Financial Crisis of
2008, which was followed, however, by a rather quick restoration. However, the GDP growth
doesn’t follow a straight-line pattern, but rather a permanent buffeting one, with authorities
trying to conceal the effects of the business cycles in order to maintain a steady growth and
ameliorate the potential harms for the economy. In this context, a more relevant approach to
seize the changes Germany has gone through would be analysing the GDP growth rate chart,
which would make the picture clearer.

GDP Germany, % change


6

-2

-4

-6

-8
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Figure 2 Chart made by the author using data from IMF (2019)

As it can be seen through the graph, Germany’s GDP growth rates have been quite volatile in the
period of 18 years. At the same time, a few extremes can be seized on the graph. The first
attention-capturing period is set at the beginning of the new millennium, between year 2000 and
2003, when GDP growth plunged, reaching -0.72%. According to Heim and Truger (2005), the

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cause for Germany’s stagnation is mainly a macroeconomic mismanagement. In the described
period of time, the GDP growth was sustained mainly by export surpluses, the domestic demand
contribution to GDP being negative in this period of time. Overall, Germany was performing
well on the international market, but was suffering from a lack of domestic demand. As
suggested by the same authors, most economics of the period thought that a cause would be the
institutional sclerosis. As depicted by Olson (1982), institutional sclerosis defines the inability of
institutions to adapt to the pace of change, resulting in harmful effects on the economic growth.
However, Heim and Truger (2005) argue that there is not enough empirical data to assess the
institutional sclerosis, and the available data hardly supports this idea. Moreover, as suggested by
the same authors, there are three main reasons for the stagnation period.

First of all, Germany has adopted a contractionary fiscal policy characterized by a reduced public
expenditure. The reason for such a decision was the political pressure put on Germany that kept
exceeding the 3% limit for the budget deficit as a share of GDP (Heim and Truger, 2005). As a
result, as government expenditure decreases, the aggregate demand follows the path affecting
consumption, and, due to multiplier effect, reduces the GDP growth.

Secondly, Germany was affected by the European’s Central Bank monetary strategy, leading to
the inability to take advantage of the low interest rates. In the period from 2001 and 2005, the
average short-term interest rate generated by ECB policies was 0.6%, while in Germany the
average was 1.2% (Heim and Truger, 2005). Higher interest rates made the borrowing more
expensive, and, thus, caused a decrease in consumption, the last affecting negatively the GDP
growth.

Third reason, according to the same authors, is the weak wage policy. (Heim and Truger,
2005)In the period from 2001 and 2005, Germany’s nominal wage increase could be described
as moderate. This results in a slower labour cost growth and deflation, which in result makes the
interest rate lowering monetary policies useless. Additionally, by the end of 2002, the
unemployment rate (N-N*/N*) exceeded the Eurozone average, which means that there were
less people to get involved in producing goods and providing services, serving as a cause for the
decrease of the GDP.

Given all of the above, Germany adopted a general pro-cyclical policy towards the stagnation of
economy, increasing its effects and resulting in a negative GDP growth in 2003.

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The second important period is the recovery from the stagnation. At that moment of time, a top
priority for Germany would have been the unemployment rate, which at the end of 2002
exceeded the Eurozone unemployment rate of 9.1% (Eurostat, 2019), and increased until 2005,
reaching 11.2%. Germany adopted Hartz reforms which aimed towards reducing the
unemployment and increasing the general level of qualification of labour. As a result, as it can be
seen from the GDP growth chart, the GDP growth rate increased due to more labour on the
market, which provided more goods and services. However, the Hartz reforms affected not only
the real GDP, but also the potential GDP.

3 Output Gap in % of potential GDP


2
1
0
-1
-2
-3
-4
-5
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Figure 3 Chart made by the author using data from IMF (2019)

As it can be seen from the graph, in 2002 Germany’s economy was close to a full employment
state, after which, suddenly, the output gap became negative. An explication to this situation
could be the increase in Y* (full employment GDP, or potential GDP), due to the increase in the
Marginal Productivity of Labour, as a result of Hartz reforms. Now, besides the fact that there
are more qualified specialists on the market seeking for a job, they are also more productive,
being able to produce a bigger amount of goods and offer
services faster than they did previously. In the short-run, the
effects of such a change could be painful due to the decrease
in wages; however, the positive output is seen in the long-run
via a decrease of prices, interest rates, and the increase in
investments with positive effects on GDP. The situation is
Figure 4 ASAD model for 2002-2006
period. Chart made by the author depicted in Figure 4. In the long run, the economy reaches the

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full-employment GDP again, corresponding to the 2006 situation.

After the collapse of Lehman Brothers Investment bank, and the beginning of the Global
Financial Crisis, Germany’s economy gets a hard hit. The impact is strong due to the dependence
of Germany on exports, which, in 2009 suffered a decline of 14.25%. Exports are a function of
foreign GDP, thus, given the impact the Financial Crisis had on other big economies who are
Germany’s trading partners, a decrease in partners’ GDP causes a collapse in Germany’s GDP.
As a result, Germany’s GDP growth rate hits the rock bottom in the same year, showing a
negative growth of 5.56%. Notwithstanding the hit, Germany was able to recover quickly. One
of the main reasons for this was the government work subsidy called Kurzarbeit, which allowed
workers whose working hours were reduced because of the recession to receive a part of the lost
payment (“Kurzarbeit”, 2009). The result is impressive, Germany being able to keep the
unemployment rate under 8% during the crisis, a rate smaller than before-crisis period (IMF,
2019). The recovery followed quickly, in 2011, Germany reaching 2664 billion EUR of real
GDP, higher than the before-crisis level.

During the following years, Germany maintains a positive growth rate of GDP, averaging 1.59%
per year, from 2012 to 2017. At the same time, as it can be seen from Figure 3, the output gap in
percentage of potential GDP stays below 1%. This might mean that Germany uses counter-
cyclical measures to ameliorate the effects of the business cycles and keep the GDP close to the
full-employment GDP. Additionally, the secret relies in putting emphasis on vocational trainings
and keeping the labour skilful. As it is mentioned by Anderson (2012), in Germany, pupils from
15 to 16 years old spend less time in school and more in workplaces receiving vocational
training. Due to this, Germany is able to keep the unemployment rate low, engage skilled
workers in the market, and maintain its position as one of the biggest manufacturers in the world.
Altogether, these factors contributed to the transition from the sick man of Europe at the
beginning of millennium, to the country being able to keep the European Union away from
recession. But how does Germany stand in comparison with another big economy such as
France? Commented [VC2]: To be changed

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France

In the given timeframe, France’s GDP follows an upward sloping trend, with a persistent rise,
exception being the Global Financial Crisis period. At the beginning of the millennium, France’s

France, GDP in billions EUR


2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Figure 5 Chart made by the author using data from IMF (2019)

GDP stood at 1823 billion EUR. Due to the trend described earlier, France was able to reach a
real GDP of 2246 billion EUR by the end of the timeframe, in year 2017 (IMF, 2019). A simple
calculus would show that France has shown a 23.2% increase in its real GDP over 18 years.
18
1.232 = (1 + 𝑥)18 => 𝑥 = √1.232 − 1 => 𝑥 = 1.16%

This would mean a 1.16% growth annually. The upward slopping GDP graph, in addition to the
moderate annual growth rate would suggest that France had a rather stable economy, due to
which GDP was slowly but confidently rising to the final point on the timeframe, where it
reached a value of 2246 billion EUR. But is the reality so simple and straight forward?

As in the previous section example, the answer would be “not really”. The real GDP graph won’t
allow us to get a detailed image of what was happening through various periods of time, thus,
GDP growth graph would come in handy.

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GDP France, % change
5

-1

-2

-3

-4
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
Figure 6 Chart made by the author using data from IMF (2019)

As it can be seen from Figure 6, France’s economic growth could be divided into several periods.
The first one, similarly to the Germany’s example, is a period of stagnation at the beginning of
2000’s, characterized by a drop in the growth rate of GDP. The local minimum in this period of
time was reached in 2003, when the GDP growth rate stood at 0.823% change, after reaching
3.924% growth in 2000 (IMF, 2019). This sudden fall could point to a stagnation period for
economy.

According to Cette et al. (2017), such a fall in growth could be explained by a stagnation in the
productivity of labour. Indeed, according to OECD (2019), labour productivity growth in France,
in 2003, was only 0.57%, compared to 1.83% growth in 2001, and, respectively, 2.92% in 2002.
This could be explained by the informational technologies boom at the end of 1990’s and the
beginning of 2000’s. The fall in labour productivity growth would point at the transitionary
period to the new technologies, when additional trainings and capital factors would be needed for
companies to switch to more advanced technologies. Moreover, the period could be described by
an uncertainty on the job market (BBC News, 2003), which could be caused by expectations of
not meeting the new technological requirements. At the same time, in this period Government
Revenue decreased by 0.711% and the Government Expenditure increased by 1%, effects which

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increase the budget deficit and slow down the GDP growth (IMF, 2019). Combined with the
transitionary period to new technologies and the job uncertainty, this would lead to the decrease
of GDP growth.

Output Gap in % of potential GDP


2.5
2
1.5
1
0.5
0
-0.5
-1
-1.5
-2
-2.5
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Figure 7 Chart made by the author using data from IMF (2019)

The output gap chart could help make the situation clearer. As it is shown in the Figure 7, at the
beginning of the millennium, France was in an overheated state of economy, the real GDP
exceeding the potential GDP by almost 1.5%. However, the economy cannot stay in this state
forever, and, the economy will shrink, causing amortisation which could be seen as a negative
gap in 2003, followed by 2 years when output gap was lower than 0.5%. (IMF, 2019)

The following period, 2006-2008, the economy enters an expansionary period. Investments grew
from 22.45% in 2005, to 24.13% in 2008. Year 2006 is characterized by higher exports rate
growth (5.9% growth in exports, compared to 9.9% in 2005), and 0.7% lower imports compared
to 2005 (IMF, 2019). The increase in exports is due to the fact that France’s main trading
partners were also experiencing an expansionary period, and the increase in foreign GDP results
in an increased demand for goods and services, which can be provided by trading partners.
Unemployment also declined, pointing out at an overheated economy (Y>Y*). However, this
state is not the most sustainable one. Given the fact that economy is in an overheated state, the
unemployment rate is lower than the full employment-unemployment, pointing at a tight labour

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market. In this situation, there is an upward pressure on wages,
due to the high demand of labour on the market. As there is an
increase in wages, people have more purchasing capacity,
willing to exchange their money for goods. An increase in
demand for goods, combined with higher production costs due
to increase in labour will affect the prices, which will increase.
Given the demand on the market, companies are willing to
Figure 8 Chart made by the author produce more, in order to get higher profits, thus, they seek for
more employees. The result is a vicious cycle, the effect of which is an increasing inflation rate.
The situation corresponds to the short-run Phillips Curve, where lower unemployment is
associated with higher inflation rate (Figure 8). This is exactly what happened in reality, the
inflation rate, which was 1.6% in 2007, almost doubled in 2008, reaching 3.16% (IMF, 2019).

Besides high inflation, 2008 was also characterized by the beginning of the Financial Crisis
deployment, which settled down the prominent French expansion. The GDP growth rate fell to -
2.873%. The effect is also visible on other variables, such as savings, total investment, imports
and exports, and unemployment, all of them suffering from a sudden decline (IMF, 2019).

After crisis, France managed to reach a pre-crisis level of GDP in 2011, when real GDP stood at
2110 billion EUR, compared to 2085 billion EUR in 2008. Growth rate reached 1.9% already in
2010, followed by 2.1% in 2011. This points out to the fact that France was able to recover
quickly after the Global Financial Crisis. However, French economy got another hit during the
European sovereign debt crisis (BNP Paribas, n.d.), which slowed down the GDP growth. Even
though the growth rate fell, France was able to keep it positive, at 0.3% in 2012 (IMF, 2019).

The last period in France is characterized by a relatively small growth rate. Additionally, as it
can be seen from Figure 7, from 2012 to 2016, French output gap is negative, standing at almost
-1%. However, in 2017, the output became less prominent, standing at 0.078%. (IMF, 2019).This
means that the output the country generates is slightly bigger than the full-employment GDP,
assuring a sustainable economic stance and a stable growth. The positive deployment could be
because of three factors: improved competitiveness, regaining export market share, and fiscal
imbalance reduction (BNP Paribas, n.d.).

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Comparison

There is no doubt that, in the given timeframe of 18 years, both Germany and France have
managed to perform generally good. Moreover, their real GDP graphs (Figure 1 and Figure 5)
follow a very similar pattern, characterised by an upward trend, with an exception being the
Financial Crisis. Germany’s real GDP has grown 24.4%, while France’s GDP increased by
23.2%. Judging strictly by this indicator, it can be said that Germany outperformed France by
1.2% in the given timeframe. At the same time, the average annual growth for Germany’s GDP
is 1.22%, while France’s GDP is 1.16% per annum. Even though Germany outperformed France
in GDP growth, there are other aspects which should be taken in consideration.

First of all, a rather good indicator would be the country’s GDP growth rate chart (Figure 2 and
Figure 6). The first thing visible, in this situation, is the more responsive character of the German
economy to the activities that are going on in the market. Taking as a point of reference year
2003, when both Germany’s and France’s growth rate collapsed, it can be said that Germany
reacted sharper than France, reaching -0.722%, while France was able to keep the growth rate
positive, at 0.823%. The same situation persists during the Financial Crisis, where the growth
rate for Germany stood at -5.56%, and for France -2.873% (IMF, 2019). An explication of this
could be the dependence of the country on the foreign market, especially on foreign GDP. For
example, based on 2017 data (IndexMundi, n.d.) Germany’s exports accounted for 47.3% of
their GDP, while for France, the exports represent 30.3% of GDP. This might mean that changes
in other countries market influence German GDP more than France GDP, mainly because the
first, relies more on foreign GDP than the second. Due to this, during periods of uncertainty or
crisis, when the GDP of the trading partners seizes a decline in growth rate, Germany’s GDP
suffers more due to limited exports, on which the country relies.

Secondly, both countries recovered quite quickly after the Financial Crisis, managing to obtain a
pre-crisis or even higher level of GDP in 2011. However, the way countries performed after that
is of a special interest. In case of Germany, the country was able to keep the output gap positive
and small from 2012 until 2016 and reaching almost 1% of output gap in 2017. From the other
side, French output gap remained around -0.5% during the same time frame, reaching a positive
value in 2017, where the output is almost equal to the potential output. This suggests that

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Germany has adopted better policies which allows them to generate an output almost equal to the
potential one, keeping an efficient stance. France, on the other hand, has been underperforming,
not being able to get the potential output. An explanation to this situation could be the structural
reforms which Germany took in the early 2000’s. This allowed them to engage, according to the
demand, more skilled and prepared work force into the market, which would provide services
and manufacture goods to sustain the economy.

Thirdly, given such factors as population number, inflation, prices, which could alter the general
image regarding GDP, I suggest using GDP per capita at purchasing power parity in 2011
international dollars in order to make final conclusions regarding this macro variable in the given
countries. As it can be seen in Figure 9, the values for both countries at the beginning of the
millennium are quite similar, Germany outweighing France by 1868.05 USD. During the
analysed timeframe, the value for both countries is rising, experiencing a downfall during the
Global Financial Crisis, similarly to real GDP graphs. However, at the end of the period it can be
observed that the gap between German GDP per capita at purchasing power parity and the
French one, increased. Thus, in 2017, the value for Germany is 46177 USD, while for France it
stands at 40145.94 USD (IMF, 2019). The gap increased by 3.2 times. This may suggest that
over the period, Germany has adopted better policies, and, has a better economic performance.

GDP per capita at Purchasing Power Parity


2011 USD
50,000.00
45,000.00
40,000.00
35,000.00
30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

France Germany

Figure 9 Chart made by the author using data from IMF (2019)

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Inflation

Inflation rate in both Germany and France stays, generally, quite low when compared to other
countries, mainly because of the high stability of this economies. Additionally, as in the case of
GDP, inflation rate pattern for both countries follows a similar pattern, with small exceptions.
Starting with the pre-crisis era, a first conclusion can be already drawn. From 2000 to 2006,
Germany has, generally a lower inflation than France. One of the first reasons could be the lower
growth rate of unit cost of labour. Due to this, there is no upper pressure on prices to go up, and,
thus, the inflation is kept quite low. Additionally, European Union’s strategy was to keep the
inflation rate close, but lower than 2% per year, target which should be achieved by the member
states. In the case of Germany, the inflation was kept under 2%, while France, which had a
higher growth of unit of labour cost at the beginning of millennium, has higher inflation than
Germany, but still manages to keep it under 2%, exception being year 2003 and 2004. This
period is also known for the adoption of Euro as a universal currency in European Union, fact
that could potentially cause a volatile character of the inflation rates. Notwithstanding this, both
Germany and France were able to keep their inflation rate under the European Union one.

During the expansionary, pre-crisis, period, given the overheated economies in both countries,
the tight labour market set an upward pressure on prices, due to which, the inflation rates
boomed in both countries in 2008. In this period, the inflation rate for Germany was 2.8%, and,
respectively, 3.2% for France (Eurostat, 2019).

During the financial crisis, the inflation stood at a very low level. During the crisis, the
investments into economy are quite low. Additionally, the unemployment rate in France was
rising. Despite the fact that Germany has kept the unemployment almost untouched, this effect
was reached by increased government spending on the Kurzarbeit program. In 2009, Germany
had an inflation of 0.2%, while France’s inflation rate was 0.1%. During the Financial Crisis, to
keep banks working, European Central Bank proceeded to a non-standard measure, providing
unlimited credits to banks at a fixed interest rate (ECB, 2019). This stimulated the economy via
borrowing and investments. Additionally, commodity prices increased. Combined, these factors
caused the inflation to rise as well. In 2011, inflation reached 2.48% in Germany, and 2.28% in
France (Eurostat, 2019).

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After crisis the investments level was low. In this context, Juncker Plan in addition to an
expansionary monetary policy was adopted. At that time, European Union was in a liquidity trap
situation, characterised with very low interest rates. Thus, the expansionary monetary policy had
almost no effect on the interest rates. Moreover, if analysing the liquidity trap in an ISLM model,
it can be observed that LM curve is almost flat, and, thus, is not sensitive to the money supply
change. However, due to the excess liquidity, investors’ expectations were affected in a positive
manner, causing an increase in the real exchange rate due to the depreciation of euro. As real
exchange rate went up, competitiveness of countries members of European Union has also
increased, leading a growth in exports, and, thus, a growth of the net exports, which affected
positively the investments. The entire combination of policies resulted in an even bigger decrease
in inflation, which reached 0.7% in Germany, 0.1% in France and 0.1% in the European Union
(Eurostat, 2017).

What is interesting in this period is the fact that Germany and France switched places, meaning
that Germany had higher inflation rate over the period than France. This situation could be
explained by analysing Figure 3. During the described period, Germany was in a slightly
overheated economy, and had a decreasing unemployment rate. These factors have set a pressure
on the prices to grow, since the labour market was tight, causing the marginal cost of production
to rise. Consequently, the

Inflation, % per annum prices rose, and the


4.0 inflation stood at higher
3.5 levels. Notwithstanding
3.0
2.5 these, the inflation rate
2.0 was still decreasing, even
1.5
1.0 if at slower rates than
0.5 France. The situation is
0.0
outstanding because, while
inflation decreased, the
European Union Germany France
unemployment also
Figure 10 Chart made by the author using data from Eurostat (2019)
decreased, which comes
into contradiction with the short-run Phillips Curve. The oil price rise in 2017 contributed to the
increase in inflation in both countries.

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Unemployment
Unemployment is another important constituent of the analysis. Even though the inflation rate
and GDP could suggest something about unemployment, a deeper analysis is necessary to
understand the differences between both countries.

Unemplyment rate, % of total labour force


12

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

France Germany

Figure 11 Chart made by the author using data from IMF (2019)

Germany’s case is an interesting one, since the unemployment chart seen in Figure 11 points at
two trends: the upward slopping, unemployment increasing phase; and, the prominent downward
slopping line from 2005 until 2007. The first period, from year 2000 until 2005, could be
described by a dramatic increase in the unemployment rate. The peak was reached in 2005 at
11% of unemployed people. There are a few reasons for this situation. First of all, by looking at
Figure 2, it can be seen that this period is determined by a stagnation of the economy, the growth
rate declining, and even becoming negative. In this situation, there is less demand on the market,
less investments, and less consumption. People are losing jobs because the companies can’t
sustain the high marginal costs and the additional units of labour. The second reason is the
adoption of the Hartz reforms. According to Tran (2005), under the Hartz IV reform, 360000
people got the unemployed status and could face cuts in financial aids if they refused a job offer.
However, the last one also served as a reason for the next period, in which unemployment fell
from 11% in 2005, to 3.75% in 2017. The structural reforms provided more job employment
centres, vocational trainings, and cuts in benefits for unemployed people. The structural reform
allowed Germany not only to increase the labour force, but also increase the Marginal
Productivity of Labour, which, consequently, increased the potential output (Figure 12).

18
Besides Hartz structural reforms, Germany adopted another
strategy which was used during the Global Financial Crisis.
Being aware that the Crisis would cut from demand for
products and services, and, that this shortage could cause
people to get fired, Germany adopted Kurzarbeit. Under this
program, employees whose working hours were reduced due to
the Crisis, could receive up to 80% from the missing working

Figure 12 Chart made by the author


hours. This allowed Germany to keep a low unemployment
rate even during the Crisis. The unemployment was 7.383% in
2008, and 7.667% in 2009. The increase was slight; however, the price was the growth in
government spending. Even so, keeping the skilled labour force allowed Germany to recover
quickly after the Crisis, and decrease the unemployment even more in the next period of time.

France, on the other hand, has a less prominent unemployment graph. In the period from 2000 to
2006, unemployment oscillated between 9.17% and 8.6%. During the pre-crisis period, due to
the expansionary period and the growth in investments, the unemployment rate dropped to
7.45% in 2008. Building boom financed by the investments required workforce, which allowed
France to lower the unemployment rate. However, in 2009, the unemployment rose back to 9%.
Construction sites were abandoned, and people engaged in the pre-crisis activities became
unemployed again. In the next years unemployment was growing, reaching 10.375% in 2015.
According to Leigh (2018), the main reason for the high unemployment rate is the skill
mismatch. Simply put, there is a discrepancy between the demanded skills on the labour market,
and the labour force actual skills. The problem is more acute in such sectors such as enginery and
IT, France not being able to produce enough skilled labour force. However, after reaching the
peak in 2015, the unemployment rate is declining, hitting 9.43% in 2017. The unemployment is
forecasted to fall even further due to policies which will put more emphasis on reducing short-
term contracts, easing of labour laws and a pro-business vision.
The main differences for the countries rely on the way they approach unemployment. Germany
has adopted structural reforms from early stages in order to produce skilled labour and be able to
cover their export-based manufacturing needs. At the same time, during critical moments,
Germany made all the possible to keep the employees. On the other hand, France did not seem to
be bothered by the growing unemployment rate, measures being taken only in the recent period.

19
Private
20
Public
21
External
22
Swan
23
Policy rec

References:
Hein, E., & Truger, A. (2005). A Different View of Germany's Stagnation. Challenge, 48(6), 64-
94. Retrieved from http://www.jstor.org/stable/40722348
Olson, M. (1982). The Rise and Decline of Nations: Economic Growth, Stagflation, and Social
Rigidities. Yale: Yale University Press.
https://www.ezonomics.com/whatis/kurzarbeit/

https://www.bbc.com/news/business-18868704

Cette, Corde, Lecat (2017)https://www.persee.fr/doc/estat_0336-1454_2017_num_494_1_10778

https://data.oecd.org/lprdty/labour-productivity-and-utilisation.htm

Job uncertainty France http://news.bbc.co.uk/2/hi/business/3165999.stm


https://economic-
research.bnpparibas.com/Views/DisplayPublication.aspx?type=document&IdPdf=29951

https://www.indexmundi.com/germany/by_end_use_gdp_composition.html

https://www.indexmundi.com/france/by_end_use_gdp_composition.html

https://www.ecb.europa.eu/mopo/decisions/html/index.en.html

Maybe ? https://www.eesc.europa.eu/resources/docs/eu-industry-and-monetary-policy-report-en.pdf
Maybe ? https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/investment-plan-
europe-juncker-plan/what-investment-plan-europe_en

Maybe ? https://www.consilium.europa.eu/en/policies/investment-plan/
HZ https://www.ft.com/content/f12c2178-1cef-11e0-8c86-00144feab49a
Eurostat
OECD
IMF

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Tran(2005)https://www.theguardian.com/business/2005/mar/31/germany.money

https://www.reuters.com/article/us-france-economy-labour/as-frances-economy-takes-off-a-new-
problem-labor-shortages-idUSKBN1FT2KG

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