ifo Schnelldienst 3/2001

Discussion

Labour market flexibility: Are the reforms points in the right direction?

Changes in the working world call for new labour market regulations. For Dr. Ursula Engelen-Kefer, deputy chairperson of the DGB (German Labour Union Federation) the reforms that the government has implemented and plans to implement are pointed in the right direction: "We do not expect that job creation will be hindered, nor do we expect the competitive situation of firms to worsen such that they will be forced to reduce jobs." Dietmar Heise, managing director of the BDA (Federation of German Employers) fears that the government's reform package will lead to "a further inflexibility in the labour market and to a solidification of the high rate of hard-core employment". Prof. Norbert Berthold of the University of Würzburg argues for clear deregulation of the labour market. Prof. Jürgen Kromphardt of the Technical University of Berlin and member of the German Council of Economic Advisors doubts that "deregulation of the labour market will have positive effects on employment. To achieve higher employment, more demand for labour from improved demand for goods and services is necessary as well as a more even distribution of work between job holders and job seekers."

Research Results

Inhabitant weighting in the fiscal equalisation scheme - economic analysis and reform requirements

A controversial problem in Germany at the moment is the reform of the fiscal equalisation scheme necessitated by the decision of the constitutional court on 11 November 1999. A central aspect is the examination of the privileges enjoyed by the three city-states, Hamburg, Bremen and Berlin, under the current system. Possible extra requirements of the city states, in the opinion of the judges, must "be demonstrably appropriate on the basis of reliable and objective indicators". The study by the Ifo Institute, in collaboration with Prof. Bernd Huber, University of Munich, Dr. Karl Lichtblau, Institute of the German Economy in Cologne, and the Center for European Economic Research, concluded that the special situation of the city states must continue to be respected. However, the weighting given to the city states in the current fiscal equalisation scheme must be reduced, and a new, more differentiated system must be introduced. Likewise for sparsely populated Länder, no additional requirements can be claimed. An inhabitant weighting scheme is not necessary here.
Christian Baretti, Bernd Huber, Karl Lichtblau and Rüdiger Parsche

Inhabitant weighting in the fiscal equalisation scheme

Prof. Söllner of the Technical University in Ilmenau also sees no justification for the current practice of inhabitant weighting.
Fritz Söllner

Improved production opportunities and unchanged sales problems - time is running out for east Germany

Between 1991 and 1999, more than DM 1.59 trillion was invested in east Germany. But despite the relatively strong capital intensity, the labour and capital productivity of east German enterprises lags behind its competitors. Unit labour costs continue to be too high in east Germany, and there are still too few long-term, sustainable market-entry and marketing successes.
Albert Müller

Economic growth in national accounting: a comparison between Germany and the U.S.

Since 1996 the growth rate of real GDP in the U.S. has been measured on the basis of a chain-type annual-weighted Fisher quantity index, i.e. the growth rate of real GDP is independent of the basis year but it is no longer ensured that GDP is equal to the sum of its components. Despite this flaw, a change in the German national accounts system to a Fisher index would be necessary if also in the German price statistics hedonic methods were used to measure price developments in the area of IT investments. After such a revision, the results of German national accounting would again be compatible with the statistical data of the U.S. and other important industrial countries.
Wolfgang Nierhaus

Data and Forecasts

Belgium: Further consolidation of national finances

In the first half of 2000, the economic recovery continued. Real GDP grew by an estimated 3¾% and unemployment fell to an annual average of 8.5%. Governmental budgets were nearly balanced, and the current account displayed substantial surpluses. In 2001 GDP is expected to grow by almost 2¾%. Employment will grow by about 1¼%, and the unemployment rate will fall to 8%.
Oscar-Erich Kuntze

Western Europe: Economic growth in line with potential growth path

In Western Europe the strong economic recovery continued up to the Summer of 2000. Thereafter, it slowed down somewhat. This trend will continue this year. In 2001 real GDP is expected to grow by about 2.6%, the unemployment rate will fall to about 7½%, and consumer prices will increase by 2%, on average.
Oscar-Erich Kuntze

Spotlight

How inflation is measured

In 2000 consumer price inflation accelerated in Germany, but the actual rate varies depending on the price index used. Measured in terms of the price index for the cost of living of all private households, prices increased by 1.9% in 2000; in terms of the harmonised consumer price index (HCPI) for Germany by ca. 2%; and in terms of the consumer price deflator by only 1.4%.
Wolfgang Nierhaus

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