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Journal of Economic Perspectives: Vol. 28 No. 1 (Winter 2014)

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From Sick Man of Europe to Economic Superstar: Germany's Resurgent Economy

Article Citation

Dustmann, Christian, Bernd Fitzenberger, Uta Schönberg, and Alexandra Spitz-Oener. 2014. "From Sick Man of Europe to Economic Superstar: Germany's Resurgent Economy." Journal of Economic Perspectives, 28(1): 167-88.

DOI: 10.1257/jep.28.1.167

Abstract

In the late 1990s and into the early 2000s, Germany was often called "the sick man of Europe." Indeed, Germany's economic growth averaged only about 1.2 percent per year from 1998 to 2005, including a recession in 2003, and unemployment rates rose from 9.2 percent in 1998 to 11.1 percent in 2005. Today, after the Great Recession, Germany is described as an "economic superstar." In contrast to most of its European neighbors and the United States, Germany experienced almost no increase in unemployment during the Great Recession, despite a sharp decline in GDP in 2008 and 2009. Germany's exports reached an all-time record of $1.738 trillion in 2011, which is roughly equal to half of Germany's GDP, or 7.7 percent of world exports. Even the euro crisis seems not to have been able to stop Germany's strengthening economy and employment. How did Germany, with the fourth-largest GDP in the world transform itself from "the sick man of Europe" to an "economic superstar" in less than a decade? We present evidence that the specific governance structure of the German labor market institutions allowed them to react flexibly in a time of extraordinary economic circumstances, and that this distinctive characteristic of its labor market institutions has been the main reason for Germany's economic success over the last decade.

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Authors

Dustmann, Christian (U College London)
Fitzenberger, Bernd (Albert Ludwig U Freiburg and ZEW Mannheim)
Schönberg, Uta (U College London and IAB, Nuremberg)
Spitz-Oener, Alexandra (Humboldt U Berlin and IAB, Nuremberg)

JEL Classifications

E23: Macroeconomics: Production
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles
E65: Studies of Particular Policy Episodes
F14: Empirical Studies of Trade
F43: Economic Growth of Open Economies
J21: Labor Force and Employment, Size, and Structure

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