Offshoring, employment, labour market reform and inequality: Modelling the German experience

Thomas Beissinger (), Nathalie Chusseau and Joel Hellier ()

No 330, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: A usual interpretation of the high performance of the German economy since 2006 is that the Hartz labour market reforms have boosted German competitiveness, resulting in higher exports, higher production and lower unemployment. We start from the diagnosis that this explanation is at odds with the sequence of observed facts. We propose and model an alternative scenario in which offshoring explains the gains in competitiveness but increases unemployment and inequality, and the subsequent labour market reforms lower unemployment by lessening the reservation wage and expanding the non-tradable sector, amplifying the rise in inequality. The model outcomes are consistent with all the developments of the German economy since 1995: 1) The model explains why Germany offshored earlier and more intensively than other Eurozone countries; 2) The increase in competitiveness and in the exports/production ratio occurs before the setting of the labour market reform, and this comes with both higher inequality and higher unemployment; 3) The setting of the labour market reform reduces unemployment and increases production, and this comes with a decrease in the exports/production ratio and an increase in inequality. We finally discuss (i) the possible extension of this `strategy' to other Eurozone countries, and (ii) alternative policies that act through similar mechanisms, but without increasing inequality.

Keywords: Germany; inequality; labour market reform; offshoring; unemployment. (search for similar items in EconPapers)
JEL-codes: H55 J31 J65 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-04
New Economics Papers: this item is included in nep-eec, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ecineq.org/milano/WP/ECINEQ2014-330.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2014-330

Access Statistics for this paper

More papers in Working Papers from ECINEQ, Society for the Study of Economic Inequality Contact information at EDIRC.
Bibliographic data for series maintained by Maria Ana Lugo ( this e-mail address is bad, please contact ).