A rising auto industry sinks all hairdressers

or the reason I explained Balassa-Samuelson, or Die fette Jahre sind vorbei. 

The popular view of Germany, especially now, when its neighbors are falling to pieces,  is that of a country with a solid industry and strong economic growth, an export powerhouse whose products embellish the whole Italy and the World.

This was not, however, always like this. Manche Menschen ändern sich manchmal:


Germany’s performance during the 90s was rather poor, as you can see. The cause? Lack of competitivity, the 90s were not years of large surpluses, as the 2000s were:


What changed? How did Germany solve this problem? The answer were the policies of this man. Labor costs in Germany were too high for it to be competitive, so Schröder simply dismantled the Welfare State in 2003, with the program known as Agenda 2010, despite fierce opposition from labor unions and socialists (Schröder’s own party).

Increases in productivity have gone to the newly employed, but mostly they were transformed into profits for capitalists, which has in turn increased investment and production. No income was left for the laborers, so their real wages have stagnated. As manufacturing labor, manufacturing being a tradeable good, lost bargaining power, so did every other sector in the economy: the wage push by increased productivity in the manufacturing sector disappeared. In the words of the paper that served as an inspiration for this post:

The low wage increases in the industrial sector—a bellwether of the German economy in terms of wage negotiations, and a sector that pays relatively high wages—certainly left a mark on the wage contracts and compensation agreements signed in other sectors.

It is then unsurprising that as Germany’s growth hits a new high, labor’s  share in total income hits an all time low.