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Thursday, February 28, 2008

German Unemployment February 2008

Germany's seasonally adjusted unemployment rate declined again in February (although the non seasonally number of actual unemployed rose slightly for the second month as is normal at this time of year) and reached the lowest level in more than 15 years as mild weather and global demand for machinery and cars led companies to increase their workforce. The actual number of unemployed was 3.61 million, while the seasonally adjusted number of people without work fell by 75,000 to 3.34 million. This brings the number of jobs created in the past 12 months to more than 500,000.

The jobless rate, adjusted for seasonal swings, (and as calculated using the German methodology) dropped to 8 percent from 8.1 percent in January, the Federal Labor Agency in Nuremberg said today. That's the lowest level registered since November 1992. Using the ILO compatible data - published two months behind the national data (see comparative chart below) - Germany had 3.52m jobseekers in December, and an unemployment rate of 8.2 per cent.

Employment is being supported to some extent by a mild winter that helps construction companies retain workers. At 3.6 degrees Celsius the average temperature in February was 3.3 degrees higher than the long-term average, said Andreas Friedrich, meteorologist at the Offenbach-based weather service DWD.

However despite the drop in umeployment domestic consumption has been falling:

For a detailed explanation of why this improvement in employment may not be passing through to an improvement in consumption see this post here. The Financial Times point out in this article that employment growth seems to be conyinuing apace in small to middle size companies, but there is some concern that larger firms may be shedding labour. The engineering group Siemens and tyremaker Continental have both recently announced staffing reductions and BMW and consumer products group Henkel added themselves to the list this week announcing that 8,100 and 3,000 jobs were to go respectively.
In the past, such large cuts have mainly affected workers outside Germany owing to the legal difficulties and high costs associated with implementing redundancy plans at home. However, since a package of reforms introduced in 2004 increased the flexibility of Germany’s labour market, economists say such big cuts could now have a swifter impact on the labour statistics.

Some evidence to support this view can be found in the fact that the number of workers in jobs liable to social security contributions dropped back again in November and December (the last months for which we have data at this point), although if we look at the chart we can see that some of this may well be seasonal, since a similar tendency can be seen last winter.

However, the federal labour agency stressd that both the mild weather this winter and the changes in the laws governing seasonal unemployment, which mainly affected construction workers, might be influencing the figures, since these factors will not yet been adequately incorporated in the seasonal correction formula. So we need to wait a couple more months yet awhile before we can really see what is happening here. Interestingly enough Frank-Jürgen Weise, head of the labour agency, pointed to three factors as possibly influencing the data at this point: strong economic growth, the impact of past labour market reforms, and a shrinking active population as the German workforce ages. This last component in particular is far too often neglected by employment commentators. Again we are still at an early stage in this process, but some indication of recent movements can be gained from the chart below.

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