Parallel Universes

Pity the lot of the poor economist required to opine, if not actually pontificate, on the basis of numerical data. Readers might witness the graphic on the left. Tracking the near mirror image courses of productivity* and unemployment in Germany and Spain since 2002, the picture reveals exactly how wide, despite nearly identical administrative procedures, is the definitional gap between these two countries.

In the case of Germany, the unemployment insurance system explicitly subsidizes continued employment in an economic downturn - workers are retained but a portion of their wages are transparently supplied by the government. In that of Spain, the support is similar - but that it is implicit and opaque - as workers resort to the social security system to make up for a shortage, but not complete absence, of work or a lowering of wages. This is to say that many, along with their employers who retain them on a part-time or as-needed cash basis, cheat the system.

The end result is the lines visible particularly from the end of 2008. Spanish unemployment and productivity absolutely soar as the drop in official employment overshoots that of real economic output. In Germany, the opposite happens. The relatively flat UR in no way reflects the straits in which the economy found itself at the time, and the brunt of the effect is to be found in the productivity figures.

Interesting, though, is the fact that German productivity peaked in the same year that the Spanish equivalent made a bottom - 2005. In the latter case, we would attribute it to the truly vast amounts of unregistered, foreign labour used by a then turbo-charged construction industry. As for Germany, we have no idea.

*No particularly good reason for using this measure of productivity - except that the Eurostat database churned it out. One accepts what one gets when dealing with that clunker.

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