Economics and politics - comment and analysis
9. September 2013 I Stefan Dudey I Economic Policy, Labour Market and Distribution of Income

Low wages in Germany and the European imbalance problem

Last week, a project with aims quite similar to flassbeck-economics, published an article by Gerhard Bosch “Low wages in Germany and the European imbalance problem“. Gerhard Bosch is professor at the University of Duisburg – Essen and managing director at the Institute for Work, Skills and Training (IAQ).

The article is well worth reading. We want to recommend it and highlight a few thoughts found in it:

– Gerhard Bosch makes clear that Germany’s export industry benefits from low wages not only when trading inside the eurozone, but also outside. While Germany acquired a competitive advantage throughout the years, high wages in other euro zone countries offset the inherent pressure for the euro to appreciate in value.

– Economic policy in Germany has a long history of focusing on export strength and competitiveness. The Hartz legislation 2003 through 2005 enacted by a coalition of Social Democrats and Green Party strongly pushed forward the politics of internal devaluation. At the same time media campaigns funded by employer organisations “successfully propagated the view that Germany, for all its low wage increases and large export surpluses, suffers from high labour costs and inflexible labour market regulations, and is consequently uncompetitive”.

– Gerhard Bosch notes how German politicians recently have advised troubled nations throughout Europe to adopt a similar strategy of reforms, also aiming at internal devaluation and strengthening competitiveness and exports. “This policy, however, cannot be applied at will to other countries, since only by abolishing the laws of mathematics would be it possible for all countries to have export surpluses”, Gerhard Bosch remarks.