Germany on the Road to Reform
The German economy is facing serious short- and long-term challenges, the most pressing of which are high unemployment levels and slow GDP growth in recent years. The roots of the problems lie in the structural rigidities of the labor market, the over-generous unemployment benefits and welfare programs that create disincentives to actively participate in the economic life, the high vulnerability to external cyclical fluctuations, and the inability of policymakers to initiate in-depth reforms. In addition, the unification of 1990 and the resulting large fiscal transfers to the less-developed Eastern part have limited the opportunities to invest on a federal level in high-growth strategic sectors. The current German government has been attempting to introduce more flexibility in the labor market, following British and Swedish models, while constantly employing tax cuts as the ultimate counter-cyclical and confidence-boosting tool in the short run. More attention needs to be given to developing the reforms of the welfare and social security mechanisms, where the emphasis should be on creating more sustainable ways of financing and providing incentives for active job search. Moreover, the administration must utilize the decline in the power of unions and try to reduce the implicit minimum wage, which has been the major obstacle to jobs creation for low-skilled workers. Link to PowerPoint? presentation
Filchev, Nikolay, "Germany on the Road to Reform" (2003). URC Student Scholarship.
Ronald R. and Susan C. Hahn Summer Research Fellowship