October 29, 2009

Dean Baker makes an astute observation:

Okay, I'm not on vacation, but this is a BTP flashback. My original write-up of this NYT news article was way too positive. This article was essentially a diatribe against Germany's welfare state. To make its case, it turned an incredible success story -- Germany's relatively low unemployment rate -- into a failure.

The basic deal is that Germany adopted an explicit policy of encouraging employers to shorten work hours rather than lay off workers. The government allows unemployment benefits to be used to pay workers to cover most of the loss in wages due to the shorter workweek.

As a result, Germany's unemployment rate has barely changed in the downturn. Its unemployment rate at present is 7.7 percent. This is down from 7.8 percent earlier in the year. Germany's unemployment rate in 2007 was 8.4 percent, 0.7 percentage points higher than the current level.

This is an incredible success story. Imagine Barack Obama's approval rating if the unemployment rate today was anywhere close to its 4.7 percent average for 2007. Think of the millions of unemployed workers who would not be struggling to pay their rent or mortgages or meet other bills if only our leaders were as smart as Germany's leaders. We could do something along the same lines in the U.S.

But NYT readers will be spared such thoughts because the article described the policy as a complete failure. To make its case, the NYT even used the German government's measurement of unemployment (which counts part-time workers as being unemployed) rather than the harmonized OECD measure that is directly comparable to the unemployment data in the United States.

This was not news reporting.

Dean is one of the best economists we have.

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