the pathological export boom and the bazaar effect

The Pathological The Pathological

Export Boom and Export Boom and

the Bazaar Effectthe Bazaar Effect

The Pathological The Pathological

Export Boom and Export Boom and

the Bazaar Effectthe Bazaar Effect

Hans-Werner Sinn-

CESifo Munich

World Economy Annual LectureWorld Economy Annual Lecture

Nottingham, 27 OctoberNottingham, 27 OctoberWorld Economy Annual LectureWorld Economy Annual Lecture

Nottingham, 27 OctoberNottingham, 27 October

H.-W. Sinn

The German puzzle

H.-W. Sinn

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

Million persons

Unemployment in Germany1) 1970 – 2005

GermanyGermany

West Germany

TrendTrend

East-G

Aug. 23, 2005

1) Since 1991 western Germany without Berlin, eastern Germany including Berlin.

Source: Federal Labor Agency; 2005: calculations and forecast by the Ifo Institute, June 2005.

H.-W. SinnSources: Eurostat, 2005: Forecast by the European Commission; West Germany and East Germany: Arbeitskreis VolkswirtschaftlicheGesamtrechnungen der Länder, April 2005; 2005: Forecast by the Ifo Institute (June 2005); Ifo Institute calculations.

100

105

110

115

120

125

130

135

140

145

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

In 1995 prices, 1995=100

Real Gross Domestic Product in Selected EU Countries

Ireland 105,5 %(growth 1995–2005)

R Aug. 1, 2005

United Kingdom 33.0%

West Germany14.0% (excl. Berlin)

EU15 24.0%Austria 24.8%

Italy 15.3%

France 25.3%

Finland 42.1%Spain 40.1%

Denmark 22.6%

East Germany6.9% (incl. Berlin)

H.-W. Sinn

Net Investment Share in NDP - International Comparison (2003)

Belgium 3.6Norway 3.7

Slovakia 4.0Sweden 4.3

Denmark 4.4Japan 4.4

Netherlands 5.3

United Kingdom 6.5Portugal 6.5

Italy 6.9France 7.0

USA 7.0Canada 7.8Iceland 8.7Austria 8.9

Luxembourg 9.6Czech Republic 9.8

New Zealand 11.2Australia 11.3

Mexico 11.7Ireland 14.5

Spain 15.5

Greece 18.6Turkey 16.4

Euro area 6.4

0 4 8 12 16 20in %GermanyGermanyGermanyGermany 3.03.0

Finland 3.1

Aug. 23, 2005Source: OECD, database National Accounts - Volume 2, 1970-2003; Ifo Institute calculations.

H.-W. Sinn

But aren´t the

Germans export

champions?

H.-W. Sinn

0 200 400 600 800 1.000 1.200

US dollar billion

World Merchandise Trade and World Trade in Commercial Services

Exports in 2004

Source: WTO, Press Release: World Trade Report 2005. April 15, 2005

206.8Taiwan

216.1Singapore

263.2Spain

293.6Korea

319.7Hong Kong

358.4Belgium

368.9Canada

430.7Italy

431.2Netherlands

514.8United Kingdom

559.4France

652.3China

659.3Japan

1,040.9GermanyGermany

1,138.3United StatesUnited States

H.-W. Sinn

• The German industry bazaar

• Rigid wages & welfare state

• Gains from trade?

• Outsourcing & fall of Iron Curtain

• The evidence on the bazaar effect

• Pathological export boom

• Conclusions & policy implications

H.-W. Sinn

The German

industry bazaar

H.-W. Sinn

450 silent stars

H.-W. Sinn

Top-Twenty Trade Fairs Worldwide (2001 through 2004)

0 50 100 150 200 250 300 350 400

138,345ACHEMA, Frankfurt/Main 2003

141,792IAA, Frankfurt/Main 2003

142,277SALONE INTERNAZIONALE DELMOBILE, Milan 2004

143,416HANNOVER MESSE, Hannover 2004

148,359interpack, Düsseldorf 2002

153,627ISH, Frankfurt/Main 2003

154,877Heimtextil, Frankfurt/Main 2004

155,252IAA, Hannover 2004

155,938INTERMAT, Paris 2003

160,308K, Düsseldorf 2004

161,332drupa, Düsseldorf 2004

161,867Automechanika, Frankfurt/Main 2004

165,139imm cologne, Cologne 2004

171,477CONEXPO-Con/AGG, Las Vegas 2002

176,478MACEF, Milan 2004

190,993Ambiente, Frankfurt/Main 2004

192,164EMO Hannover, Hannover 2001

312,539CeBIT, Hannover 2004

320,969ELMIA-WOOD, Jönköping 2001

348,832BAUMA + MINING, Munich 2004

Exhibition space inside (m2)

Source: Ausstellungs- und Messeausschuss derDeutschen Wirtschaft e.V., Berlin 2005, on demand.

H.-W. Sinn

Top-Twenty Trade Fairs Worldwide (2001 through 2004)

0 50 100 150 200 250 300 350 400

138,345ACHEMA, Frankfurt/Main 2003

141,792IAA, Frankfurt/Main 2003

142,277SALONE INTERNAZIONALE DELMOBILE, Milan 2004

143,416HANNOVER MESSE, Hannover 2004

148,359interpack, Düsseldorf 2002

153,627ISH, Frankfurt/Main 2003

154,877Heimtextil, Frankfurt/Main 2004

IAA, Hannover 2004

155,938INTERMAT, Paris 2003

160,308K, Düsseldorf 2004

161,332drupa, Düsseldorf 2004

161,867Automechanika, Frankfurt/Main 2004

165,139imm cologne, Cologne 2004

171,477CONEXPO-Con/AGG, Las Vegas 2002

176,478MACEF, Milan 2004

190,993Ambiente, Frankfurt/Main 2004

192,164EMO Hannover, Hannover 2001

312,539CeBIT, Hannover 2004

320,969ELMIA-WOOD, Jönköping 2001

348,832BAUMA + MINING, Munich 2004

Exhibition space inside (m2)

Source: Ausstellungs- und Messeausschuss derDeutschen Wirtschaft e.V., Berlin 2005, on demand.

155,252

H.-W. Sinn

The fall of the Iron

Curtain:

Outsourcing

and offshoring

H.-W. Sinn

Hollow shell?

Outsourcing of upstream

production

The example of the Porsche Cayenne

The bazaar effect

H.-W. Sinn

German direct investment in eastern Europe higher than

ever

60 % of SME’s engaged outside old

EU

Competitiveness of firmsvs.

that of employees

Nearly 4 million jobs abroad, 800,000 in eastern Euope

H.-W. Sinn

German workers lose

their monopoly position

in delivering to the

bazaar

H.-W. Sinn0 5 10 15 20 25 30

1.10China1.45Bulgaria1.78Romania

2.52Latvia3.03Lithuania3.29Poland3.61Slovakia3.88Estonia

4.49Czech Republic4.53Hungary

7.21Portugal10.00Korea

16.59Spain17.24Italy

17.95Japan18.79Ireland

19.89United Kingdom19.91USA

20.74France21.50Austria

23.32Sweden25.31Switzerland

27.31Norway27.6027.60West GermanyWest Germany

EurosLabour Costs1) per Hour in 2004

Denmark 28.14

Aug. 23, 20051) Average labour costs in industry.

H.-W. Sinn

Where is the evidence?

H.-W. Sinn

The decline in

production depth

H.-W. Sinn

Share of own value-added in manufacturing output (1970 – 2004)

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 0430

32

34

36

38

40

42

30

32

34

36

38

40

42% %

West GermanyWest Germany

GermanyGermany

Aug. 23, 2005Sources: German Statistical Office, Special series 18, Series S.21 (West Germany; old National Accounts data),Series S.26 (Germany: National Accounts Revision, May 2005); calculations by the Ifo Institute.

The Declining Production Depth in Manufacturing

H.-W. SinnSources: German Statistical Office, Special series 18, Series S.21 and Series 1.3, Ifo Institut calculations.

20

24

28

32

36

40

44

48

52

20

24

28

32

36

40

44

48

52

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

% %

Food, beverages and tobacco

Chemical industryChemical industry

MachineryMachinery Electrical industryElectrical industry

Motor vehicles

West Germany Germany

Aug. 23, 2005

The Declining Production Depth: Various IndustriesShare of own value-added in manufacturing output (1970 – 2004)

Basic metals,Basic metals,fabricated metalfabricated metalproductsproducts

H.-W. SinnSources: German Statistical Office, Special series 18, Series S.21 (West Germany; old National Accounts data),Series S.26 (Germany: National Accounts Revision, May 2005); calculations by the Ifo Institute.

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 0418

20

22

24

26

28

30

32

34

18

20

22

24

26

28

30

32

34% %


GermanyGermany

Aug. 23, 2005

Share of Manufacturing Value Added in GDP1970-2004

H.-W. Sinn

Outsourcing to

the service sector?

H.-W. Sinn

80

90

100

110

120

130

140

150

160

170

1992 1994 1996 1998 2000 2002 2004

Aug. 23, 2005

Bazaar-EconomyComponents of the change in German manufacturing production

(manufacturing industry) 1991 to 2004, 1995=100

Sources: Federal Statistical Office; Ifo Institute calculations.

Real output

Domestic intermediaries(real)

Real value added

Imported intermediaries(real)

H.-W. Sinn


ImportedIntermediaries(real)

29.3 %

3.0 %

1995 – 2004

Aug. 23, 2005

Manufacturing value added(real)

16.7 %16.7 %49.8 %

33.5 %

Components of Change in Manufacturing Output

H.-W. Sinn

100

130

160

190

220

250

280

310

350 400 450 500 550 600 650 700 800750

Euro billions

V = imported intermediaries1)

X = exports1)

V = -100.2 + 0.53*XV = -100.2 + 0.53*X

Sources: German Statistical Office, National Accounts, Input-Output Tables,Importabhängigkeit der deutschen Exporte and Sprcial series 18, Series S.26, Ifo Institute calculations.

Line of origin

1991

1995

2000

2002

Aug. 23, 2005

Exports and Imported Intermediaries1)

1) Both variables are deflated by the export price index.

Elasticity of exports with regard to value added = 1.3%

Elasticity of imports with regard to exports

= 1.36%

H.-W. Sinn

Is Germany affected

more strongly, and if

so,

why?

H.-W. Sinn

1991 1993 1995 1997 1999 2001 200330

32

34

36

38

40

1) Austria, Belgium, Denmark, Finland, France, Italy, Netherlands, Portugal, Sweden, Spain, United Kingdom.

EU exceptGermany1)

%

Sources: German Statistical Office, Special series 18, Series S.26, OECD, STAN database for IndustrialAnalysis, Deutsche Bundesbank, Ifo Institut calculations.

3.0 3.0

Germany

4.0 4.0

Aug. 23, 2005

Share of own value-added in manufacturing output

Bazaar Effect in International Comparison

H.-W. Sinn

1991 1993 1995 1997 1999 2001 200330

32

34

36

38

40

USA, Japan, France,United Kingdom

%

Sources: German Statistical Office, Special series 18, Series S.26, OECD, STAN database for IndustrialAnalysis, Deutsche Bundesbank, Ifo Institut calculations.

Germany

Aug. 23, 2005

Share of own value-added in manufacturing output

Bazaar Effect in International Comparison

H.-W. SinnSources: Eurostat, Ifo Institut calculations.

Countries Jahr Share (%)

Italy 1995 172000 19

Denmark 1995 222000 26

Finland 1995 202000 24

Netherlands 1995 292000 30

Austria 1995 252000 29

Sweden 1995 232000 28

Germany 1995 202000 26

+2

+4

+4

+1

+4

+5

+6

Aug. 25, 2005

Share of Foreign Intermediaries in Total Intermediaries

Legend: All numbers refer to total economy. Those countries are mentioned for which Eurostat data are available.Change of share in percentage points.

H.-W. Sinn1) Australia, USA: 1991–2001. 2) New Zealand, France, United Kingdom, Japan: 1991–2002. 3) West Germany incl. Berlin.

Employment in ManufacturingChange 1991 to 2003 in %

-30 -25 -20 -15 -10 -5 0 5 10 15

-26.9-24.0

-22.2-18.6-18.6-18.5

-16.2-14.9-14.4

-12.3-11.1-10.6

-8.2-5.9

-4.7

5.26.7

12.0

-4.4-3.9

0.9

GermanyGermanyJapan 2)

West Germany West Germany 3)3)

BelgiumUnited Kingdom 2)

KoreaAustria

DenmarkSweden

France 2)

NetherlandsPortugal

LuxembourgItaly

USA 1)

FinlandNorway

Australia 1)

New Zealand 2)

SpainCanada

Aug. 26, 2005Source: OECD STAN, database for Industrial Analysis, 2005.

H.-W. Sinn

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

Million persons

Employment in Manufacturing

GermanyGermanyWest GermanyWest Germany

Sources: German Statistical Office, Special series 18, Series S.21 and S.26; Arbeitskreis VGR der Länder,

Volkswirtschaftliche Gesamtrechnungen, Länderergebnisse, Series 1, Part 1, February 2005.

including Berlin

Aug. 24, 2005

H.-W. Sinn

Geographical proximity

High wages

Cultural proximity

The causes

H.-W. Sinn

0

10

20

30

40

50

60

70

80

90

100

Czech

Rep

ublic

Croat

ia

Slovak

ia

Sloven

ien

Poland

Roman

ia

Estonia

Latvi

a

Bulgar

ia

Litua

nia

Hunga

ry

Secondary School Pupils1)

learning English, German and French in 2003English German French

Source: Eurostat. Aug. 23, 2005

1) Pupils in the upper and lower levels corresponding to levels 2 and 3 of theInternational Standard Classification of Education (ISCED) in % of all pupils at this level.

H.-W. Sinn

Gains from trade?

H.-W. Sinn

0

5

10

15

20

25

1991 1995 2000 2002

%

1) Gross value added directly created in the production of exports and upstream domestic production stages.

Source: German Statistical Office, Importabhängigkeit der deutschen Exporte, Wiesbaden 2004.

Share of Export Induced Domestic Value Added1)

in German Gross Domestic Product

Aug. 26, 2005

A meaningless indicator

H.-W. Sinn

70

80

90

100

110

70

80

90

100

110

50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

Index (2000=100)

International Terms of Trade1)

1) Ratio of price indices of exports to price indices of imports.1950 to 1990 West Germany, from 1991 Germany.

Sources: German Statistical Office, (1991–2004) Special series 18, Series S.26, Table 2.3.3; (1970–1991) Series S.21, Table 3.3.1;(1950–1970) Lange Reihen der Wirtschaftsentwicklung 1998, Wiesbaden 1999, Table 15.3. Aug. 24, 2005

H.-W. Sinn

Employment in therest of the economy

Manufacturing industry

Non-Employment1.26 mill.

- 1.09 mill.

Labour Volume1995 – 2004, Full-time Equivalents

- 0.17 mill. Aug. 24, 2005

H.-W. Sinn

Why wages are rigid

H.-W. Sinn

Social assistance as jobkiller of low-skill workers

The Harmonica Effect

Social

assistanc

e

H.-W. Sinn

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1980-84 1985-89 1990-94 1995-99 2000-011) 9 / 1 decile ratios for the gross earnings of full-time employees.

Source: OECD, Employment Outlook 2004, table 3.2, p. 141.

Earnings Disperson1) in USA, United Kingdom and Germany1980 – 2001

USAUSA

United KingdomUnited Kingdom

GermanyGermany

H.-W. Sinn

The pathological export

boom

H.-W. Sinn

High wages kill labour

intensive industries

H.-W. Sinn

Brecher (QJE 1974)

Davis (AER 1998)

H.-W. Sinn

The bazaar effect and

the pathological export

boom

combined

H.-W. Sinn

Export sectorsImport competingsectors

(capital intensive) (labour intensive)

Upstream

Downstream

(labour intensive)

(capital intensive)

Normalspecialisation effect Aug. 24, 2005

Effects of a High-Wage Policy

H.-W. Sinn

Bazaareffect


Aug. 24, 2005

Export sectors(capital intensive)

Import competingsectors(labour intensive)

(labour intensive)

(capital intensive)

Normalspecialisation effect

Upstream

Downstream

H.-W. Sinn

Countries become more similar

Biased technological progress

Trade collapses

Samuelson´s argument

H.-W. Sinn

• Strongest bazaar effect in Germany

• No gains from trade with German welfare

Conclusion

• German workers lose their monopoly position

• Pathological boom of value added in exports

• Pathological exaggeration of bazaar effect

H.-W. Sinn

• Activating social aid

• Investment wages

• Working retirement

Policy Implications

H.-W. Sinn

H.-W. Sinn

In thousand euros

0

5

10

15

20

25

30

35

62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 0460

United Kingdom

West Germany

East Germany

Gross National Income per Capita (1960 – 2004)current prices and exchange rates

Sources: OECD, Annual National Accounts, Arbeitskreis Volkswirtschaftliche Gesamtrechnungen

der Länder (January 2004), Deutsche Bundesbank (2004): calculations by the Ifo Institute.

1960-1969, 2003-2004 estimated on the basisof GDP values

Germany

France

50 %50 %

H.-W. Sinn

In thousand euros

0

5

10

15

20

25

30

35

62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 0460

Sources: OECD, Annual National Accounts, Deutsche Bundesbank (2004); calculations by the Ifo Institute.


1960-1969, 2003-2004 estimated on the basisof GDP values.

Germany EU15*

1) Without Belgium, Greece, Luxembourg, Sweden

Germany

H.-W. Sinn

0

5

10

15

20

25

1991 1995 2000 2002

%

1) Gross value added directly created in the production of exports and upstream domestic production stages.

Source: German Statistical Office, Importabhängigkeit der deutschen Exporte, Wiesbaden 2004.

Share of Export Induced Domestic Value Added1)

in German Gross Domestic Product

Aug. 26, 2005

H.-W. Sinn

Savings, Net Investment and Current Account Surplus inRelation to Net Domestic Product, Germany 1991 – 2004

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20042

4

6

8

10

12%

Currentaccount surplus(net exportsminus transfers)

Sources: German Statistical Office, Special series 18, Series S.26, Ifo Institut calculations.

Net investmentNet investment

SavingsSavings

Aug. 24, 2005

H.-W. Sinn

Export sectorsImport competingsectors

(capital intensive) (labour intensive)

Intermed. stage

Final stage

(labour intensive)

(capital intensive)

Normalspecialisation effect Aug. 24, 2005


H.-W. Sinn

Bazaareffect


Aug. 24, 2005



Intermed. stage(labour intensive)

Final stage(capital intensive)


H.-W. Sinn

Bazaareffect

Abb. 12.1 Effects of a High-Wage Policy

Aug. 24, 2005



Intermed. stage(labour intensive)

Final stage(capital intensive)


H.-W. Sinn

Gross domestic product + 0,7 %Imports + 3,8 %

Sources: German Statistical Office; calculations and forecast by the Institutes (Joint Analysis Spring 2005)

Private consumption 0,4 %Gross investment 0,7 %

Exports + 4,1 %

Germany in 2005

H.-W. Sinn

-75

-50

-25

0

25

50

75

100

125

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Euro billions

Sources: Deutsche Bundesbank, time-series database; Ifo Institut calculations.

Current nettransfers tothe world

Currency exportCurrency exportCurrency importCurrency import

Net capital exportNet capital export

Current accountCurrent accountsurplussurplus

Trade balanceTrade balance

Aug. 24, 2005

Trade Balance, Net Capital Outflow, Current Account Balanceand Net Capital Export; Germany 1980 – 2004

Economic trade surplusEconomic trade surplus= net capital outflow= net capital outflow

H.-W. Sinn

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

20,0

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

%

Net Investment Share in NDP1):Selected Industrialized Countries

GermanyGermany3)3)

OECD average OECD average 2)2)

Sources: German Statistical Office, Special series 18, Series S.21 und Reihe S.26; Eurostat, website;OECD, National Accounts, Volume I, 2005 and Ifo Institute calculations.

EU15 exceptEU15 exceptGermanyGermany

Aug. 23, 2005

1) Net investment as % of NDP; current prices. 2) Except Czech Republic, Poland, Hungary, Slovakia.

3) Until 1990 former west Germany.

H.-W. Sinn

Social assistance as jobkiller of low-skill workers

The Harmonica Effect

Social

assistanc

e

H.-W. Sinn

0

4

8

12

16

20

24

28

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

West Germany including West Berlin

Without trainingWithout training

Source: Institut für Arbeitsmarkt- und Berufsforschung der Bundesanstalt für Arbeit (IAB-KurzberichtNr. 9/2005, Anhang 1.

21.7

7.3

3.5

2004

University degree

Completed occupational training2)

in %

Aug. 26, 2005

Qualification-Specific Unemployment Rates1)

1) Unemployed in % of civilian labor force (excl. Trainees) with the same qualification, men and women.2) Completed occupational training: within firm training, occupational school, special master‘s and technical.

H.-W. SinnSource: OECD, Education at a Glance 2002: p. 117, Table A11.2.

International Comparison of Qualification-Specific Unemployment Rates

(30 to 44 year-old men, 20011))

1) Belgium, Netherlands, Norway and Austria: 2000.

Less than higher secondary education (no completed occupational training or high school education)

Higher secondary education (completed occupational training or high school)

University degree

0

2

4

6

8

10

12

14

16

Germ

any

United

King

dom

Finlan

d

Franc

e

Belgium

Spain

Japa

n

United

Sta

tes

Italy

Irelan

d

Sweden

Austri

a

Korea

Greec

e

Denm

ark

Nethe

rland

s

Portu

gal

Norway

in %

11.9

11.9

11.9

11.9

8.1

8.1

6.3

6.3

6.3

6.3

6.2

6.2

4.9

4.9

4.7

4.7

4.0

4.0

2.4

2.4

2.3

2.3

7.4

7.4

7.5

7.5

14.2

14.2

7.6

7.6

7.1

7.1

3.0

3.0

10.7

10.7

2.6

2.6

2.2

2.2 2.

82.

8

2.2

2.2

3.9

3.9

2.9

2.9

2.7

2.7

1.8

1.8

1.4

1.4

1.6

1.62.0

2.0

3.4

3.4

3.5

3.5

3.2

3.2

4.2

4.2

1.2

1.21.

61.

6

1.8

1.8

3.9

3.9 4.

74.

7

4.6

4.6

4.4

4.4

2.0

2.0

4.7

4.7

2.3

2.3

2.3

2.3

1.4

1.4

3.5

3.53.8

3.8

3.6

3.6

3.2

3.2

5.1

5.1

3.1

3.1

3.0

3.0

7.0

7.0

7.1

7.1

H.-W. Sinn

Löhne und Gehälter

H.-W. Sinn

90

100

110

120

130

140

82 84 86 88 90 92 94 96 98 00 0290

100

110

120

130

140

82 84 86 88 90 92 94 96 98 00 02

1982=100 1982=100

United States

United States

NetherlandsNetherlands

Western Germany

Western Germany

138138

120120

104104

136136

124124

100100

2) Total economy incl. government; West Germany incl. western Berlin.

Sources: OECD, Institut der deutschen Wirtschaft, IAB; the Ifo Institute calculations.

1) Manufacturing industry; West Germany incl. western Berlin.

Real Hourly Labour Costsin Manufacturing

Total Number of Man-Hoursworked: Total Economy

H.-W. Sinn

0 5 10 15 20 25 30

In euros

1) Average labour costs in industry.

Hourly Labour1) Costs in 2004

Sources: For the accession countries, the Eurostat figures for 2000 were extrapolated on the basis of the Eurostat press releaseno. 81 of June 21, 2005 or the ILO database Laborsta respectively. China and Korea 2001: ILO database Laborsta andIfo Institute calculations. West Germany: Cologne Institute for Business Research.


China 1.101.10

Bulgaria 1.451.45

Romania 1.781.78

Latvia 2.522.52

Lithuania 3.033.03

Poland 3.293.29

Slovakia 3.613.61

Estonia 3.883.88

Czech Republic 4.494.49

Hungary 4.534.53

Korea 10.0010.00

27.6027.60

Oct. 18, 2005

H.-W. Sinn

0 5 10 15 20 25 30

In euros

Hourly Labour1) Costs in 2004

Sources: For the accession countries, the Eurostat figures for 2000 were extrapolated on the basis of the Eurostat press releaseno. 81 of June 21, 2005 or the ILO data base respectively. West Germany: Cologne Institute for Business Research;east Germany: Ifo Institute calculations. Oct. 18, 2005

1) Average labour costs in industry.

Bulgaria 1.451.45

Romania 1.781.78

Latvia 2.522.52

Lithuania 3.033.03

Poland 3.293.29

Slovakia 3.613.61

Estonia 3.883.88

Czech Republic 4.494.49

Hungary 4.534.53

East GermanyEast Germany 19.8219.82

West GermanyWest Germany 27.6027.60

H.-W. Sinn

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Mill. persons40.0

36.0

37.0

38.0

39.0

36.5

37.5

38.5

39.5

Mill. persons

Oct. 18, 2005

EmployeesEmployees(left-hand scale

26.10526.105

39.03139.03138.93338.933

26.0

27.0

28.0

29.0

30.0

26.5

27.5

28.5

29.5Aug./05

July/05

Employment in GermanyJanuary 1999 – August 2005

Employees subject toEmployees subject topublic insurance systempublic insurance system(right-hand scale)

Source: German Statistical Office, Bundesagentur für Arbeit, September report 2005.

H.-W. Sinn

80

90

100

110

120

130

140

150

2000 2001 2002 2003 2004 2005

January 2000=100

Source: Bundesanstalt für Arbeit.

Only employees inlow-pay jobs

4.8 mill. pers.

26.1 mill. pers.

Oct. 18, 2005

Employment in West and East GermanyRegular and low-pay jobs, January 2000 to July 2005

Legend: Employees subject to public insurance system; monthly values, seasonally adjusted;West: West German Länder, East: East German Länder incl. Berlin

Germany

Germany

East GermanyEast Germanyincl. Berlinincl. Berlin

West Germany

East Germany incl. Berlin

West Germany

H.-W. Sinn

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

All employeesAll employees

Oct. 18, 2005

1) Manufacturing industry, mining industry and quarrying, power and water supply.2) Public utilities and business services.

Source: German Statistical Office, Special series 18, Series 1.2, Table 2.5 (August 2005).

Services2)

Producing sector1)

Employment in Germany% change over previous year

H.-W. Sinn


January 1994 = 100

76

80

84

88

92

96

100

104

76

80

84

88

92

96

100

104

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20052004

East GermanyEast Germany

Oct. 18, 2005

GermanyGermany

Sources: Federal Labor Agency, calculations by the Ifo Institute.

1) Employees subject to social security insurance; seasonally adjusted.

Employment in West and East Germany1)

- 2.2 % p.a.

July

H.-W. Sinn

Million persons Thousand persons

36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

2001 2002 2003 2004 2005 2006-200

-100

0

100

200

300

400

500

600

EmploymentJobs in Germany, seasonally adjusted

Sources: German Statistical Office; calculations and forecast by the Institutes (Joint Analysis Spring 2005). April 26, 2005

+285+285

+182

-377

-221

+131

+336+336

excludingexcludingextra jobsextra jobs

Change over previous quarter 1)

Mill. persons

Forecast periodForecast period

1) Change over previous quarter, 1000 persons (right-hand scale).

*Figures: change over previous year, 1000 persons.

H.-W. Sinn

33

34

35

36

37

38

39

40

91 92 93 94 95 96 97 98 99 00 01 02 03 04

Million persons

+ 0.24 mill.+ 0.24 mill.

- 2.78 mill.- 2.78 mill.

Sources: German Statistical Office, Special series 18, Series 1.2, Institut für Arbeitsmarkt- und Berufsforschung,Kurzbericht 10/2005, Ifo Institut calculations.

1991–20041991–2004 1995–20041995–2004

+ 1.26 mill.+ 1.26 mill.

- 1.26 mill.- 1.26 mill.

Employees (official) Employees (official)

Employees as full-timeEmployees as full-timeequivalents equivalents 1)1)

Aug. 24, 2005

Employment in Germany: Full-time Equivalents

1) Year of reference regarding man-days and hours of work is 2000.

H.-W. Sinn

Basarökonomie

Deutschland

H.-W. Sinn

4 Mio. Jobs im Ausland

60 % des Mittelstands

außerhalb EU

Etikettenschwindel

H.-W. Sinn

Imports + 7.0 %Gross domestic product + 1.6 %

Private consumption - 0.0 %Gross investment - 0.2 %

Exports + 9.3 %

The Export Puzzle:

Germany in 2004

Sources: German Statistical Office, Special series 18, Series 1.2, Table 3.2 (August 2005).

H.-W. Sinn

Sonderfall

Deutschland?

H.-W. Sinn

26.0

30.0

34.0

38.0

42.0

1970 1975 1980 1985 1990 1995 2000

%


GermanyGermany

EU15EU15

2.9%

1.4%

Sector Share of Value-added in Manufacturing

Source: OECD, Ifo Institute calculations.

H.-W. Sinn

Outsourcing ins Inland?

H.-W. Sinn

80

90

100

110

120

130

140

150

160

170

1992 1994 1996 1998 2000 2002 2004

Aug. 23, 2005

Bazaar-EconomyComponents of the change in German manufacturing production

(manufacturing industry) 1991 to 2004, 1995=100

Sources: Federal Statistical Office; Ifo Institute calculations.

Real output


Real value added

Imports intermediaries(real)

H.-W. Sinn

Gut oder schlecht?

H.-W. Sinn

Employment in therest of the economy

Manufacturing industry

Non-Employment1.26 mill.

- 1.09 mill.

Labour Volume1995 – 2004, Full-time Equivalents

- 0.17 mill. Aug. 24, 2005

H.-W. Sinn

Robustes Wachstum der Weltwirtschaft

Deutschland nur im Schlepptau

Europa schwach

Massiver Beschäftigungsabbau

Fazit

Überzogene Basar-Ökonomie

H.-W. Sinn

In thousand euros

0

5

10

15

20

25

30

35

62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 0460

United Kingdom


Sources: OECD, Annual National Accounts, Arbeitskreis Volkswirtschaftliche Gesamtrechnungen

der Länder (January 2004), Deutsche Bundesbank (2004): calculations by the Ifo Institute.

1960-1969, 2003-2004 estimated on the basisof GDP values.

Germany

West Germany

East Germany

France

H.-W. Sinn

In thousand euros

0

5

10

15

20

25

30

35

62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 0460

Germany

Ireland

Denmark

Sources: OECD, Annual National Accounts, Deutsche Bundesbank (2004); calculations by the Ifo Institute.


1960-1969, 2003-2004 estimated on the basisof GDP values

Germany

Austria

Netherlands

H.-W. Sinn


Private consumption 0.6 %Gross investment - 0.2 %

Exports + 9.3 %

The Export Puzzle:

Germany in 2004


H.-W. Sinn

Growth 2005

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0% %

Economic Growth in the Euro Area

Source: Eurostat; forecast by the Institutes: Joint Anaylsis Autumn 2005. Oct. 21, 2005

Italy

Nethe

rland

s

Germ

any

Germ

any

Portu

gal

Belgium

Finlan

d

Franc

e

Austri

a

Greec

e

Spain

Luxe

mbo

urg

Irelan

d

Euro area 1.3%

0.1

0.7

1.4 1.5 1.51.8

2.83.2

3.9

4.6

0.90.8

H.-W. Sinn

Gross domestic product + 0.8 %Imports + 4.2 %

Sources: German Statistical Office; calculations and forecast by the Institutes (Joint Analysis Autumn 2005)

Private consumption - 0.5 %Gross investment 0.9 %

Exports + 5.9 %

Germany in 2005

H.-W. SinnSources: German Statistical Office, Special series 18, Series S.21 (West Germany; old National Accounts data),Series S.26 (Germany: National Accounts Revision, May 2005); calculations by the Ifo Institute.

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

% %

Basic metals,Basic metals,fabricated metal productsfabricated metal products

MachineryMachinery

Chemical industryChemical industry

Electrical industryElectrical industry

Motor vehiclesMotor vehicles

Food, beverages andFood, beverages andtobaccotobacco

West Germany Germany

Aug. 23, 2005

Value-added Shares of Selected Manufacturing Sectorsin GDP 1970-2002

H.-W. Sinn

Weak economic

spillover

H.-W. Sinn

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

World Economy, GDP 1970-2006Constant prices, annual percentage change

Source: International Monetary Fund, World Economic Outlook Database, September 2005.

5.1

4.34.3

5.1

4.34.3

5.1

Sept. 23, 2005

4.8 4.7 4.7

H.-W. Sinn


Private consumption - 0.0 %Gross investment - 0.2 %

Exports + 9.3 %

The Export Puzzle:

Germany in 2004


H.-W. Sinn

0.81.0 1.1 1.2

2.0 2.1

2.72.9 2.9

3.3

3.8

4.9

Germ

any

Germ

any

Nethe

rland

s

Portu

gal

Italy

Franc

e

Austri

a

Spain

Belgium

Greec

e

Finlan

d

Luxe

mbo

urg

Irelan

d

Euro area 1.6%

Growth 2005

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0% %

Economic Growth in the Euro Area

Source: Eurostat; European Commission, Economic Forecast April 2005. June 11, 2005

H.-W. Sinn

0

3

6

9

12

15

18

21

24

27

30

70 72 76 78 80 82 84 86 88 90 92 94 96 98 00 0274 04Source: Institut der deutschen Wirtschaft, Cologne.

Euro per hour

PortugalPortugal

SpainSpainItalyItalyIrelandIreland

United KingdomUnited Kingdom

FranceFranceAustriaAustriaSwedenSweden

SwitzerlandSwitzerlandNorwayNorwayDenmarkDenmark


USAUSA

JapanJapan

Aug. 23, 2005

Hourly Labour Cost (Manufacturing Industry)

H.-W. Sinn

2002 2003 2004 2005J F M A M J J A S O N D J F M A M J J A S O N DJ F M A M J J A S O N D J F M A M J J A S O N D

-1750

-1250

-1000

-750

-500

-250

250

750

500

0

-1500

-1750

-1250

-1000

-750

-500

-250

0

250

750

500

-1500

Ich-AGsIch-AGs

Oct. 18, 2005

Employees inEmployees inGermany saGermany sa

Employment in GermanyAggregated changes against December 2001 (1000 persons)

Arbeitsmarkt in Zahlen: Employees in low-pay jobs, July 2005; Ifo Institute calculations.Sources: German Statistical Office, Bundesagentur für Arbeit; September report 2005;

Low-pay workersLow-pay workers

1 euro1 eurojobsjobs

Employees subjectEmployees subjectto public insurance systemto public insurance system

H.-W. Sinn

33

34

35

36

37

38

39

40

91 92 93 94 95 96 97 98 99 00 01 02 03 04

Million persons

+ 0.24 mill.+ 0.24 mill.

- 2.78 mill.- 2.78 mill.

Sources: German Statistical Office, Special series 18, Series 1.2, Institut für Arbeitsmarkt- und Berufsforschung,Kurzbericht 10/2005, Ifo Institut calculations.

1991–20041991–2004 1995–20041995–2004

+ 1.26 mill.+ 1.26 mill.

- 1.26 mill.- 1.26 mill.

Employees (official) Employees (official)

Employees as full-timeEmployees as full-timeequivalents equivalents 1)1)

Aug. 24, 2005

Employment in Germany: Full-time Equivalents

1) Year of reference regarding man-days and hours of work is 2000.

the pathological export boom and the bazaar effect

Documents

eastern germany

trade fairs

ifo institute calculations

east germany

western germany

world trade report

special series

west germany14