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Yves on European and American labor markets

Sat, 11/14/2009 - 9:00am — lambert

Bankster-friendly ideologies have made managers stupid:

Yves here. Krugman does Germany an injustice by failing to contest US prejudices about European (particularly German) labor practices. If German labor practices are so terrible, then how was Germany an export powerhouse, able to punch above its weight versus Japan and China, while the US, with our supposedly great advantage of more flexible (and therefore cheaper) labor, has run chronic and large current account deficits? And why is Germany a hotbed of successful entrepreneurial companies, its famed Mittelstand? If Germany was such a terrible place to do business, wouldn’t they have hollowed out manufacturing just as the US has done? Might it be that there are unrecognized pluses of not being able to fire workers at will, that the company and the employees recognize that they are in the same boat, and the company has more reason to invest in its employees (ignore the US nonsense “employees are our asset,” another line from the corporate Ministry of Truth).

A different example. A US colleague was sent to Paris to turn around a medical database business (spanning 11 timezones). She succeeded. Now American managers don’t know how to turn around businesses without firing people, which was not an option for her. I submit that no one is willing to consider that the vaunted US labor market flexibility has produced lower skilled managers, one who resort to the simple expedient of expanding or contracting the workforce (which is actually pretty disruptive and results in the loss of skills and know-how) rather than learning how to manage a business with more foresight and in a more organic fashion because the business is defined to a large degree around its employees.

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Saw that too

By danps on Sat, 11/14/2009 - 9:22am

It's a great point. How underrated is Yves?

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Yves is not under-rated

By lambert on Sat, 11/14/2009 - 9:28am

The people who don't link to her rate themselves.

Thank gawd for the econoblogs!

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"First they ignore you, then they ridicule you, then they fight you, then you win." -- Mahatma Gandhi

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I agree, from my Facebook Page (see date below) - S Brennan

By S Brennan on Sat, 11/14/2009 - 9:42pm

I agree, from my Facebook Page (see date below) - S Brennan

Ever wonder why Germany with it's high wages, high taxes, powerful unions and sky high cost of living winds up kicking everybody's
ass in industrial production and maintaining a balanced trade sheet?

Could it be that Germans look out for one another? Do you think Germans understand their fates are intertwined...and that social unrest...however it manifests itself...is inefficient? I think they do...and we do too, that's why the CIA keeps the Gini index.Read More

Fair Play Equals Fair Pay: BMW Links Executive Pay to That of its Line Workers - SPIEGEL ONLINE - Net
Source: http://www.spiegel.de/international/busi... BMW has become the first major company in Germany to change its compensation practices amid growing concern over excessive banker bonuses. The company cited a fairer work environment as its reason. Other firms are sure to take notice, given BMW's size and weight in the global business market.

October 29 at 1:25pm · Comment · Like / Unlike · View Feedback (9)Hide Feedback (9) · Share

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Another Krugman error on Germany

By BDBlue on Sun, 11/15/2009 - 8:36am

Or at least a missed point. Via Yves, here it is:

But this is not the main reason Germany has an institutionalized short-work (that’s the translation of Kurzarbeit) program. The Germans have this strange belief that working builds skill: you go through an apprenticeship, you work with master craftspeople, you learn the subtle ins and outs of the particular firm you are attached to (in German you work “with” and not “for”), and lo and behold you become more productive. The key purpose behind Kurzarbeit is to not lose this accumulation of human capital.

Oddly, Krugman writes, “Now, the usual objection to European-style employment policies is that they’re bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. And in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.....But these aren’t normal times.”

In normal times the US runs a massive trade deficit with Germany, unable to compete in industry after industry on quality-price comparisons. Labor in this country is strictly an expense, not an asset, and therefore quickly shed when sales go down. Note Krugman’s language: it is “occupations”, not workers who are productive. Even our most knowledgeable pundits can’t imagine an economy in which the skill of the average worker is the main competitive advantage, the last resource you would want to shove out the door.

This is another example of how skewed, IMO, the view of workers/labor has become in this country. We pay enormous amounts to CEOs, with little evidence that many of them actually make much difference in the profitability of their firms, and fail to see how valuable ordinary workers are (when there is evidence that their skill can make a difference). This skewed view of labor reflects the view as well as the failure of our management class, which I will note also manages both of our political parties and the news media.

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"Do what you feel in your heart to be right -- for you'll be criticized anyway. You'll be damned if you do, and damned if you don't. " - Eleanor Roosevelt

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