ABSTRACT
This chapter maps out a set of broad hypotheses for understanding what are prima facie contradictory trends in the German economy over the last decade or so. By international standards, West Germany was a low unemployment country although there was an upward trend during the 1970s and 1980s. During the 1990s and 2000s, Germany implemented prescribed reforms (e.g. in line with OECD recommendations) to make its labour (and product) markets more flexible and, according to OECD and many academic studies, would have expected to experience a fall in unemployment: yet it continued to rise. Moreover, we might have expected that low-skill service sector markets would be the beneficiaries of reform. While a full analysis of the data is needed before definitive conclusions can be drawn, it does not seem as though there has been a substantial expansion of employment in low-skill service sector markets. Unemployment is still low-skill intensive, and there seems to have been an increase in wage inequality and a rise in poverty.2 Worryingly, secondary education in Germany is no longer (if the PISA studies are accurate) as excellent as comparative studies in the 1980s showed it to have been, and there are also suggestions that the vocational training system no longer provides apprenticeships for many low-attaining children.
