Germany's employment miracle: fact or fiction? An important expert looks behind the curtain.

• Author: Engelen-Kefer, Ursula
• Position: Company overview

Europe is at the crossroads in trying to find ways out of a deepening crisis. Should it embrace German Chancellor Angela Merkel's austerity policies on the basis of a fiscal treaty with country-specific implementations? Or follow French President Hollande's "Compact for Growth and Jobs" that government leaders endorsed at the recent EU summit? These EU summit resolutions have raised the question: How much can Germany's bitter experience with far-reaching labor market and welfare reforms in the middle of the last decade offer a way out of debt-laden Europe's worsening predicament?

Restarting economic growth and tackling high unemployment begins in the region of Regensburg, founded as a Roman fort by Emperor Marcus Aurelius, and now a booming mid-sized city in Bavaria. For the decades when Germany was divided, Regensburg's peripheral location close to the Iron Curtain hampered its economic development. But in the last ten years, the number of regular jobs has doubled compared with average employment in the state of Bavaria, and grown six times faster than the average rate in Germany, where unemployment has reached a record low.

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Since last fall, the number of apprenticeship places for young school graduates, which for many years was insufficient, is now considerably higher than the number of young people applying for them. The reasons for the employment surge in Regensburg were explained by a top manager of BMW: "Our local BMW branch in Regensburg is marked by a distinguished pioneer spirit, for instance in developing and applying innovative models of working time, which have paved the way for the future of the automobile industry at large, but also for the establishment of the best environment-oriented body painter shop in the world."

High praise also comes from Gabriele Anderlik, the head of the regional branch of Germany's Federal Employment Agency. "Regensburg is a high-tech region with a strong position in diversified export industries-automobiles, machine manufacturing, electronics, microelectronics, and building trades. It has a balanced structure of large, mid-sized, and smaller companies. In addition, public and private services at a high professional and scientific level are expanding considerably."

The ancient old town--a UNESCO World Heritage site since 2(Kit--not only impresses with its historical buildings and its huge cathedral, but also with its many shops and restaurants. Young people from the three universities located in this city form a sizeable part of the population.

In sum, Regensburg represents the favored structure in Germany of decentralized regions with diversified economic clusters. And one can find many areas like Regensburg in today's Germany. The European Cluster Observatory has picked one hundred clusters in the European Union as "innovative regions" in respect to size, level of specialization, and location; thirty of them are located in Germany. In such clusters one can find "hidden champions," that is, middle-size companies with highly specialized products and services on world markets.

This dynamic region also represents what some call the "second employment miracle" of Germany after World War II, happening in the middle of Europe's escalating financial, economic, and employment crisis. As many European countries fight rising unemployment, employers in Germany complain about shortages of labor, largely caused by demographic changes in the labor force. Between 2010 and 2025, the German labor force will be reduced from 44.6 to 38.1 million due to low birth rates, says the Federal Employment Agency in its recent employment forecast.

The German government is now putting heavy emphasis on strategies for better using the employment potential of women, older workers, and immigrants, who are disadvantaged in the labor market with poor employment chances. This requires a considerable change in company culture and the application of diversity management, especially in small- and medium-sized companies, including lifelong learning, adjustment of working conditions and schedules, worker safety, child care, and coaches for immigrant workers. In addition, the free movement of labor in the European Union needs to be utilized through more efficient placement services across borders, with priority given to the crisis countries with high and rising unemployment. Legal changes are also needed to reduce the restrictions on hiring workers from outside the European Union. But on that issue there is still serious concern that promoting labor mobility from abroad would lead to the lowering of wages and working conditions and hurt the improving employment chances of the disadvantaged groups in the German labor market.

So how did Germany manage to change from the "sick man of Europe" and "sclerotic Old Europe" only a few years ago into what some consider an island of economic and employment stability in a European Union that has been stricken by socially explosive high unemployment--especially in the younger generation-and stagnating or even falling economic growth?

To put the question more provocatively, could Chancellor Merkel's strict austerity policies lead the high-unemployment economies of Europe out of their present misery, or would her agenda for radical structural reform and fiscal retrenchment make a bad European economic crisis even worse? How can an effective and comprehensive push for economic growth and employment be installed as promoted by the newly elected French President Hollande--without being undermined by the fiscal strains of ever-higher unlimited financial bailout costs and sovereign liabilities for euro rescue operations? For a large segment of Europe's population, what can be done to stop the progressive erosion of the European social model while at the same time carrying through with needed economic adjustments to get the countries more competitive?

BETWEEN AUSTERITY AND GROWTH STRATEGIES

The International Labour Organization sounded the alarm loudly in its recent study, "Word of Work Report 2012: Better Jobs for a Better Economy." In the next four years, another 4.5 million might be added to the 17.4 million already unemployed in the eurozone. More than one-fifth of all young people are out of work. Youth unemployment is skyrocketing in the crisis-stricken "GIPS" countries of Greece, Ireland, Portugal, and Spain. ILO Director General Juan Somavia warned of the high risk of infection not only for the still strong economies of the European Union, but also for other parts of the world.

According to the ILO report, consolidating excessive public debt as well as promoting economic and employment growth are equally important. The present focus on austerity politics--especially in crisis countries with unsustainable debt levels--will lead to economic recession with ever-higher job losses. A "lost generation" of young people may lead to social unrest and a disruption not only of the economic, social, and political foundation of the common...