Thursday, November 28, 2013

German labour market sends first gentle sign of warning

German unemployment increased by a non-seasonally adjusted 5,000 in November, bringing the total number of unemployed to 2.806 million. In seasonally-adjusted terms, unemployment increased by 10,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.9%. The Fall revival of the German labour market turned out to be softer than normal. In fact, the November numbers are the worst November performance of the German labour market since 2004. Clear signs of a bottoming out of the labour market. For the time being, the German labour market will remain an important growth driver. Record high employment combined with yet another increase in real wages (+1% YoY since the beginning of the year) bodes well for private consumption. And, indeed, German consumers seem to get into some kind of shopping frenzy, or at least some anticipation of Christmas shopping. Yesterday’s GfK index showed that the willingness to buy has reached its highest level since December 2006. The new coalition deal on a minimum wage as of 2015 should increase disposable incomes, thereby supporting private consumption. At least in the short run. Currently, more than 5 million Germans could see a wage increase from the introduction of a minimum wage. The longer run impact on jobs remains unclear. Historical evidence from other countries is unfortunately not straight-forward on whether minimum wages lead to job shedding or not. This historical evidence provides arguments for both opponents and supporters. Economics is not an exact science. In our view, however, one thing is clear: after the introduction of a minimum wage, it will be hard to squeeze additional positive effects out of the labour market. Today’s numbers send a clear warning that the labour market has reached its natural rate of unemployment. To continue the current job market miracle or start a new one, a minimum wage should be flanked by additional measures to create new jobs. Even children know that only redistributing the pie eventually leads to an empty plate.

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