[Economics] A New Agenda 2010 - What the Old One Has Caused

Siehe auch:
[Wirtschaft] Eine neue Agenda 2010 - Wozu die alte geführt hat

Addendum 2025-03-20:

The date of the euro introduction was corrected.

Due to high unemployment and weak economic growth Germany was considered the sick man of Europe in the 90s. However after the introduction of the euro in Germany in 1999 and the Agenda 2010 the German economy began to grow which was admired by many. The unemployment rate has dropped from about 10% in 2002 to about 5% in 2019.

Under German Chancellor Gerhard Schröder (SPD) (1998-2005) a supply-side and employer-friendly policy was established in Germany. Although Schröder was and is a social democrat the low wage sector has been expanded under him. To this end the level of social assistance and wages were reduced among other things as part of Agenda 2010. The goal was to reduce unemployment. The logic was that unemployment would fall if the price of labor in the form of wages declined. And in a state with a welfare system there is always an implicit wage in the amount of social assistance.

The result was not that additional work was created but that the available work was distributed to more people. While unemployment has fallen the number of hours worked remained almost unchanged. And reducing real wages has also increased the number of those who live in poverty despite work.

The Red/Green Agenda 2010
The Consequences for the Labor Market and the Population
The Consequences for the Economy
The Foreign Trade Surplus
The Alternative

The Red/Green Agenda 2010

Under Chancellor Gerhard Schröder (SPD) (1998-2005) and since the government declaration of March 14, 2003 the Agenda 2010 was implemented. Among other things the maximum period of receipt of unemployment benefit I (Arbeitslosengeld I) was reduced, from 32 months to 12 months up to the age of 55 and to 18 months from the age of 55. Unemployment benefit I (Arbeitslosengeld I) was the social benefit whose amount was tied to previous income. The original unemployment benefit was abolished and replaced with unemployment benefit II (Arbeitslosengeld II / Hartz IV). The amount of unemployment benefit II (Arbeitslosengeld II / Hartz IV) was not based on previous income but on the person's need. In addition the regulations for the reasonableness of job offers were adjusted. The formal qualifications of unemployed people no longer have any influence on the reasonableness of the job offered. And if a more reasonable job is not accepted the financial benefits are reduced. A low level of basic security is intended to serve as an incentive to accept any work. As a result the implicit minimum wage in the form of social benefits and the overall real wage level have been reduced. [1] [2] [3]

Wir werden Leistungen des Staates kürzen, Eigenverantwortung fördern und mehr Eigenleistung von jedem Einzelnen abfordern.

We will cut state benefits, promote personal responsibility and demand more personal contribution from each individual.

Gerhard Schröder (SPD) [1]

The Consequences for the Labor Market and the Population

In the period after the Agenda 2010 unemployment actually fell. From over 10% in the early 2000s unemployment fell to around 6% in 2015. At the same time real GDP growth remained relatively stable.

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[4] [5] [6]

However upon closer inspection it is noticeable that no jobs as such have been created. The number of employed people has increased from around 40 million people (2000) to around 43 million people (2015). The total annual working hours of employed people have remained almost constant over the same period.

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This development becomes even clearer when the working hours are divided by the number of employed people. Assuming a 38-hour week and 45 of 52 working weeks per year this results in up to 1,710 hours per employed person. The workforce is therefore far from full employment. The available work has simply been distributed among several people.

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The figures shown above are additionally standardized. Here the year 2000 is chosen as the reference. This means that the working hours of the employed are compared with the value from 2000. And compared to 2000 the working hours of the employed have clearly fallen.

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On the one hand this development corresponds to the development of part-time workers. The proportion of women working part-time has increased in the period under review. And the proportion of men has even doubled.

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[8]

In addition this development corresponds to the proportion of the population at risk of poverty.

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[9]

The Consequences for the Economy

This development was by no means without consequences for the economy. Although exports have risen sharply the domestic economy has stagnated over the same period. This is not surprising as the labor market is not a completely elastic market. Wages are usually the largest cost for companies. But the employees of one company are the customers of another company. Consequently wages are usually also the largest source of income for a company. This means that the stagnating real wage level in Germany has made exports cheaper for other economies. The German domestic economy however has stagnated along with the real wage level in Germany.

In addition neither Germany nor the other Euro member states were able to avoid this development. The Euro has been the sole legal tender in Germany since January 1, 1999. And with accession to this monetary union individual interest rates and above all, exchange rates were abolished. So if a country slows down or reduces its own real wage level the other Euro member states can no longer restore their own competitiveness by changing the exchange rate.

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[4] [9] [10]

Since Germany is the only euro member state to have reduced down its real wage level imports are also stagnating due to a lack of purchasing power. Germany has thus achieved an increased export share and an increased export dependency. In addition Germany has created a growing foreign trade surplus.

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[4] [9] [10]

The Foreign Trade Surplus

The German foreign trade surplus cannot exist without the foreign trade deficits of other countries. If one country exports more than it imports then another country imports more than it exports. Foreign trade deficits are bad for the countries concerned because the imports crowd out the local economy. Foreign trade surpluses are bad for the countries concerned because the claims inevitably depreciate.

The claims of countries with foreign trade surpluses inevitably lose value due to inflation. The German foreign trade surplus of 159 billion euros from 2006 only has a purchasing power of 112.84 billion euros in 2023 as a result of inflation. This means that with German inflation rates in 2023 only 71% of the original value of the goods and services exported in 2006 can be imported. It should be noted that this example was calculated using the low German inflation rates but since these inflation rates are comparatively low the actual loss will be higher. [9] [11]

Claims can be lost due to bankruptcies. This is made more difficult because foreign trade surpluses lead to a weakening by crowding out the economies of countries with foreign trade deficits.

And in the worst case countries with foreign trade deficits could leave the euro. And if the new currency is expected to devalue the sum of claims would lose value.

The Alternative

A stagnating economy like the German one measured in terms of hours worked means a lack of demand. Private households and companies have a mutually dependent demand gap. But if the foreign trade sector is to be balanced then only the state can close the demand gap.

Such a demand policy is downright unavoidable because in order to increase demand someone always has to go into debt. For economic growth it is unavoidable that someone goes into debt. And even if these circumstances are ignored the costs of government debt are not a problem for the federal government. The interest costs for the federal government tend to be less than 1% of GDP and looking at the entire post-war period the interest costs are at most between 1% and 2% of GDP. Repayments are not necessary since the state can pay off government bonds that are due at any time with new government bonds. [4] [12] [13]

[Economics] A New Agenda 2010 - What a New One could Cause 2025-02-08

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