Short interview with Prof. Anke Hassel (Oct 21, 2013)

by Juliane Sophie Stein (2nd year MA student, Political Science)

According to several commentators, current account imbalances in the Eurozone have played a considerable role in the build-up of the euro crisis. In line with this, the calls for Germany to boost domestic demand are growing ever louder. The European Commission, for instance, has recently urged Germany to increase wages and to lower high taxation for low paid employment. Will Germany correspond to these demands in the foreseeable future?
In theory, it is right that Germany should embrace the European Commission´s recommendations to boost domestic demand in order to tackle the economic imbalances in the Eurozone. Within Germany, however, there is a broad consensus that the country´s export model has proven to be a great success. Furthermore, the labor market is widely seen to be on the right track. Thus in practice, it is highly unlikely that Germany will change its trade and labor market policies. The German government will adhere to its economic strategy and will pass responsibility to the deficit countries, urging them to take appropriate measures in order to regain competitiveness. In line with this, German rhetoric will insist on structural reforms and austerity. To maintain the performance of its own economy, by contrast, Germany will mainly build on opening up new markets outside the Eurozone.
2.       What are the major challenges that the German economy is facing in the coming decade?
For one thing, Germany faces the challenge to curb low pay, for another thing the question arises of how to maintain high skill levels. The low wage sector has spread across the entire economy and deters school leavers from investing into skills. If there is only a low chance that higher skills will result in better pay, young people will resign to unskilled jobs. This is particularly damaging given the third challenge, namely managing demographic change. To solve the problem of labor shortage, which is occurring not only in the skilled but also in the low-skilled area of employment, Germany will, for the main part, rely on migrant workers and enticing women into full-time employment.
3.       The introduction of a statutory minimum wage has become a hot-button issue in Germany´s ongoing ‘grand coalition’ talks. Is the minimum wage a suitable instrument to counteract the increasing dualization of the German labor markets?
In any case, the introduction of a statutory minimum wage would make a difference for workers. Signaling that there are wages that are unacceptable would create certain expectations regarding the question of what is a decent wage. However, experience has taught us that the implementation of minimum wage is rather difficult because there are so many ways to get around it. Therefore, I do not think that the introduction of a minimum wage would resolve the problem. Creating a cost problem for many employers, in the end, the minimum wage will increase the demand for migrant labor force that contracted in their home countries at lower wages.

 

JS: According to several commentators, current account imbalances in the Eurozone have played a considerable role in the build-up of the euro crisis. In line with this, the calls for Germany to boost domestic demand are growing ever louder. The European Commission, for instance, has recently urged Germany to increase wages and to lower high taxation for low paid employment. Will Germany correspond to these demands in the foreseeable future?

AH: In theory, it is right that Germany should embrace the European Commission´s recommendations to boost domestic demand in order to tackle the economic imbalances in the Eurozone. Within Germany, however, there is a broad consensus that the country´s export model has proven to be a great success. Furthermore, the labor market is widely seen to be on the right track. Thus in practice, it is highly unlikely that Germany will change its trade and labor market policies. The German government will adhere to its economic strategy and will pass responsibility to the deficit countries, urging them to take appropriate measures in order to regain competitiveness. In line with this, German rhetoric will insist on structural reforms and austerity. To maintain the performance of its own economy, by contrast, Germany will mainly build on opening up new markets outside the Eurozone.

JS: What are the major challenges that the German economy is facing in the coming decade?

AH: For one thing, Germany faces the challenge to curb low pay, for another thing the question arises of how to maintain high skill levels. The low wage sector has spread across the entire economy and deters school leavers from investing into skills. If there is only a low chance that higher skills will result in better pay, young people will resign to unskilled jobs. This is particularly damaging given the third challenge, namely managing demographic change. To solve the problem of labor shortage, which is occurring not only in the skilled but also in the low-skilled area of employment, Germany will, for the main part, rely on migrant workers and enticing women into full-time employment.

JS: The introduction of a statutory minimum wage has become a hot-button issue in Germany´s ongoing ‘grand coalition’ talks. Is the minimum wage a suitable instrument to counteract the increasing dualization of the German labor markets?

AH: In any case, the introduction of a statutory minimum wage would make a difference for workers. Signaling that there are wages that are unacceptable would create certain expectations regarding the question of what is a decent wage. However, experience has taught us that the implementation of minimum wage is rather difficult because there are so many ways to get around it. Therefore, I do not think that the introduction of a minimum wage would resolve the problem. Creating a cost problem for many employers, in the end, the minimum wage will increase the demand for migrant labor force that contracted in their home countries at lower wages.