Learning from Germany’s Labour Reforms: Part Two

Liberalization under the Hartz Plan followed earlier negotiations with Germany’s powerful labour unions, which helped decentralize collective bargaining agreements, allowing for nearly a decade of wage restraint. Combined with the Hartz Plan, these developments led to a surge in export manufacturing activity that bucked the trend in all other advanced economies. In fact, the German economy traversed the global recession with rising employment and productivity rates.

demofatalism

In Nova Scotia, the minimum wage is $10.40 per hour and someone working full-time for 45 weeks out of the year would make roughly $18,000. This minimum income is 58 per cent and 75 per cent of Halifax and Yarmouth’s median income. There should be no surprise that rural unemployment in the province tends to be 3 to 5 percentage points higher compared to the Halifax Regional Municipality, or that rural-based, labour-intensive firms continue to shut down.

Between 2006 and 2011, Nova Scotia business counts by employee size have fallen, or stagnated, in every range except the 5-9 employee category, which added 900 new businesses. If this trend continues, small firms will likely be on the only ones left.

Once again, the German case-study proves relevant. With the exception of large automotive companies in Germany, small- and medium-sized manufacturing companies, known as Mittelstand, have driven the explosive growth in export manufacturing. Small employers benefit disproportionately from a flexible labour market because they are more likely to require workers on a temporary basis, not to mention they lack the scale to cover high unit-labour costs.

bizcount

Today, Mittelstand companies employ 70 per cent of Germany’s workforce, most of which is in small rural communities. They tend to be export-oriented with a focus on high-value products that connect to markets around the word. The lead advisor to the Obama Administration’s Automotive Industry Task Force has gone so far as to describe the last decade as Germany’s “Mittlestand Miracle.”

Of course, similar reforms in Nova Scotia would look quite different. Relative to Germany, organized labour has a weaker role in Nova Scotia and the provincial government places greater emphasis on direct regulations, such as minimum wages and occupational licensing. In Germany, for instance, the government does not regulation engineers, who, after receiving their degree, do not require licenses or work experience to practice. Regardless, the main point is not that Nova Scotia should emulate the particulars of the German case, but, rather, that we can, in principle, achieve similar successes by being bold. The alternative–demographic fatalism and resentment toward the Western provinces–were dead on arrival in Germany, and they will be here, too.

Samuel Hammond is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Carleton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

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