Gerhard Bosch

The state of manufacturing – The case of Germany

Institute for Research on Labor & Employment, UC Berkeley

Friday November 16, 2012

Prof. Dr. Gerhard Bosch

Institut Arbeit und Qualifikation

Forsthausweg 2, LE, 47057 Duisburg

Tel.: +49 203 / 379 1827; Fax: +49 203 / 379 1809,

Email: gerhard.bosch@uni-due.de ; http://www.iaq.uni-due.de/

Structure of presentation

1. Characteristics of German manufacturing

2. Reasons for its recent success

2.1 Wage restraint without danger of re-valuation

2.2 Innovation

2.3 High skill level

2.4 Internal flexibility

3. Challenges and Risks

Characteristics of German manufacturing

1. Relatively high share of manufacturing in GDP

2. Diversified quality production: specialisation in growing medium-tech industries (automobile, machine-tool…..)

3. Combination of high investments in innovation with manfacturing in own country – not mainly blueprints as smaller countries - Sweden or Finland

4. High shares of internal (within manufacturing) and external tertisarisation

5. Off-shoring overall neutral or positive effects on employment (however, differences by industries)

1.2 Shares of manufacturing in GDB in international comparison (1991-2010)

Austria

Germany

Japan

USA

France

Italy

United Kingdom

1.3 Share of value added versus BERD Intensity – Average annual growth, 1995-2006 (Germany)

Source: DG Research and Innovation

(1) High-Tech and Medium-High-Tech sectors are shown in red. ‚Other transport equipment‘ includes High-Tech, Medium-High-Tech and Medium-Low-Tech.

(2) ‚Basic metals‘ and ‚Fabricated metal products‘ are not visible on the graph.

2.1 Reasons: Wage restraint without danger of re-valuation

Long tradition of wage moderation to support exports in Germany

Until introduction of Euro continuous re-valuation of DM reduced trade surpluses

Since 2000 stagnation of real wages and unit costs in DE – because of high unemployment after unification and labour market reforms (Hartz-IV)

Increasing trade surpluses of DE and trade imbalances within Euro-Zone because of this de-facto de-valuation - one reason of Euro crisis

If countries with trade surpluses (China, DE) do not develop doemstic demand – high share of manufacturing unsustainable

2.1.1 Unit Cost (nominal, in EURO 2000=100)

Italy

Portugal

Ireland

Spain

Greece

France

Germany

2.1.2 Increasing differences in balances of payment in the EURO Zone

Surpluses

Deficits

Balance of payments in Billion Euros

Austria

Belgium

Germany

Netherlands

Spain

Portugal

Italy

Greece

France

Ireland

2.2 Reason: Innovation

Most innovation indicators show high innovation performance :- For example: world market relevant patents, expenditure for R&D, share of skilled employees, share of companies/SME‘s with product or production process innovation etc.

Relative weakness in high-tech-industries proved not to be a problem

Lead market in important industries Special characteristics:

- High diffusion of innovation across the economy also in SME‘s

- Strong family ownership with patient capital (Mittelstand) and long-term business models

Inst

itut A

rbei

t u

nd

Qu

alif

ikat

ion

2.2.1 EU Member States‘ Innovation Performance

Source: European Commission 2012

Inst

itut A

rbei

t u

nd

Qu

alif

ikat

ion

2.2.2 Gross domestic expenditure on research and development as a percentage of gross domestic product in selected countries, 1991 - 2008

Source: German Federal Ministry of Education and Research 2010

Inst

itut A

rbei

t u

nd

Qu

alif

ikat

ion

2.2.3 World-Market Relevant Patents: D, EU-27, J, USA 2000 - 2009 per Milion Inhabitants (registered in Europe and by World Intellectual Property Organization)

Quelle: Bundesministerium für Bildung und Forschung, 2012

2.3 Reason: High and appropriate skill levels

Share of un- and semi-skilled employees went down from about 65% in 1964 to around 15% 2010

Manufacturing industries employs mainly skilled workers (also for jobs which are done by semi- or unskilled workers in many other countries)

Acculumulation of tacit knowledge and high functional flexibility because of high job tenure

Middle managers mostly have a certificate from VET plus promotional training or tertiary education

Good communication flow from shop floor to engeneers/managers and vice versa

Low shares of graduates from tertiary education no disadvantage due to modernized VET

„Facharbeiter“ secret of competitiveness – not second choice for bad school leavers

Inst

itut A

rbei

t u

nd

Qu

alif

ikat

ion

2.3.1 Skill levels in main occupational and professional activities

Stayer

external professionals

without vocational training

School/training

Source: BiBB (Mikrozensus , Statistisches Bundesamt, Berechnungen und Darstellungen ) QuBe-Project2008

2.3.2 Employees, Apprentices and Apprenticeship rate in the German manufacturing industry 2008 - 2010

*5.9 % *6.0 % *Apprenticeship rate

Source: BIBB, Datenreport 2012, Tables A10.1-28-30-Internet

2.3.3 Share of population in skilled jobs and share of population with tertiary education (2006) share of the 25-to-64-year-old working population in skilled jobs (ISCO 1-3 Managers, Professional,

Technicians and Associate Professionals) and share of the 25-to-64-year-old population with tertiary education (2006)

Source: Müller BiBB

2.4 Reason: High internal flexibility Contrasting business models: USA external, DE more internal

flexibilityIn DE long tradition of „Dismissing hours not employees“ - over

last 20 years new tool box negotiated betweeen social partners:

- most collective agreements allow temporary reduction of standard weekly w-hrs. (metall industry from 35/38 hrs to 30/33 hrs)

- 50% of entreprises have working time accounts (for overtime hrs. etc. )

- short-time – subsidized by employment officeGerman Job „miracle“ in big recession because of internal

flexibilityShort time scheme = Industrial policy to save the industrial fabric

of the country

-

2.4.1 Percentage of fall in total labour input due to fall in working hours per employee, Germany, 2008–2009

Source: http://www.conference-board.org/economics/database.cfm EUROSTAT (2010a).

2.4.2 Production of manufacturing sector (2005=100)

2.4.3 Short-time working by duration in months, Germany, February 2009–December 2009

Source: Brenke, Rinne and Zimmermann (2010).

2.4.5 Employment and short time in machine tool and automobile industries, Germany, 1/2009 – 5/ 2010

Source: own calculation

2.4.6 Changes of working hours and employment in relation to changes of GDP 1991-2009 in DE and USA

Source: Schaz and Spitznagel, 2010

Working hours

per employee

Volume of working hours

Employment

Germany

USA

Challenges and risks1. Macro-economy: Stability of the Euro-Zone -

No development of domestic demand in DE2. Technology: Possibly new innovation push

through „High Tech Strategy“ of government - One main goal: „Smart Factory“ (Cyber-Physical production systems)

3. Capital: Increasing short-term thinking due to changes in ownership – capital may get „impatient“

4. Delocation: Disconnection between R&D and production in own country

5. Skill bottlenecks: Ageeing, underinvestment in education/training – lack of skilled immigrants

6. Academic „drift“: Declining reputation of dual system of apprentices-ship