Why has the German Job Market Done Astonishingly Well Despite the 2008–2009 ‘Great Recession’? New Economic Miracle, Institutional Transformation or Beggar-thy-Neighbour Policies?

Abstract

Since the early 2000s, the German labour market has undergone a sweeping institutional transformation. While during the 1990s and early 2000s, Germany was usually regarded as the ‘sick man of Europe’, the country's economy has recently been described in many respects as an international role model. Around a decade ago, a reform package was introduced that resulted in the unemployment rate being almost cut in half, in spite of the difficult economic climate due to the financial crisis and the succeeding and still ongoing problems in the Eurozone. However, the success has also been challenged due to its alleged internal and external unpleasant side-effects by critics. After having explained the essence of the German social market economy and its development prior to the deep downswing of 2008/2009 which was coined the ‘Great Recession’ by leading US economists, the paper summarises the key aspects of the rather unexpected German labour market successes since 2009 and addresses claims of related distributional injustice of these reforms within the country as well as assertions that the German success of ongoing high exports and current account surpluses is based on beggar-thy-neighbour policies. Finally, the paper briefly asks whether Germany has faced up to its responsibilities during the crisis in the Eurozone since the end of 2009.