Thread: German Unemployment reaches 6 year high: nearly 11%; European Socialism at work

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Germany's unemployment rate rose in November to the highest since December 1998 as business confidence fell to its lowest in more than a year and companies including BASF AG announced job cuts.

The seasonally adjusted jobless rate in Europe's largest economy rose to 10.8 percent from 10.7 percent in October, the Nuremberg-based Federal Labor Agency said. Economists expected the rate to stay unchanged, according to the median of 36 forecasts in a Bloomberg survey. The number of jobseekers rose 7,000.

Germany's unemployment rate is now higher than when Chancellor Gerhard Schroeder was first elected in September 1998. Companies are cutting jobs and shifting production to cheaper countries such as neighboring Poland and the Czech Republic.

``High labor costs, a lack of flexibility over working hours, a short working week and red tape'' are leading companies to move production abroad, said Martin Wansleben, the executive director of the DIHK industry and trade association, which represents 3.3 million German companies, in an interview. ``Companies aren't creating anything new here, they're only consolidating what they've got.''

Today's report also showed that the seasonally adjusted number of people in work fell 1,000 in September, the first decline this year. Figures for employment are published two months later than those for unemployment.

German unit labor costs, a measure that includes wages and labor productivity, are 16 percent higher than the average of the country's main foreign competitors and exceeded only by Norway, according to a study by the Cologne-based IW economic institute. Those costs contributed to a 2.9 percent decline in investments by German industry last year, after an 11 percent drop in 2002.

The rise in joblessness in Germany contrasts with the U.S., where economists expect 200,000 new jobs were created last month, lowering the jobless rate to 5.4 percent from 5.5 percent, according to the median estimate of 62 economists in a Bloomberg survey. The Labor Department releases the report tomorrow.

BASF, the world's biggest chemical maker, said Nov. 23 it will cut about 3,600 jobs -- about 10 percent of the total -- at its main German site in Ludwigshafen by the end of 2007 to reduce costs. The company is looking to save about 450 million euros ($599 million) by the middle of 2005.

Deutsche Bank AG, Europe's third-biggest bank by assets, plans to cut 1,920 German jobs -- or 7 percent of its German workforce -- to boost profit. Schering AG, the world's biggest maker of birth control pills, started talks in November with workers' representatives on the reduction of 950 jobs in Germany, out of 1,250 cuts planned globally.

Paris-based Alcatel SA, the world's largest provider of broadband Internet equipment, said yesterday it plans to cut 600 jobs in Germany next year. Leifheit AG, a German maker of household products, announced today it will cut 360 jobs in Germany by the end of 2005.

The threat of job losses and relocations has forced labor unions to agree to longer working hours and undermined their wage- bargaining power. Workers at Stuttgart-based Robert Bosch GmbH, the world's second-largest maker of car parts, agreed to longer hours and reductions in wage costs this year while Volkswagen AG's 103,000 German employees accepted a 28-month wage freeze.

Germany as an investment location is being challenged not only by low-wage countries, but also by nations of comparable wealth with lower taxes, said Wolfgang Wiegard, the head of Schroeder's council of economic advisers.

Stagnating wages, the specter of unemployment and higher energy costs will damp German consumer spending next year, delaying a recovery in the domestic economy, the Bundesbank said in its November monthly report.

German growth will slow to 1.4 percent next year from 1.8 percent this year, the panel of economic advisers said Nov. 17. Exports will still account for about 90 percent of that growth, said Wiegard.

The economy may cool more should the euro continue its gains against the U.S. dollar, which makes German goods more expensive in most overseas markets. The dollar, which fell to a record $1.3385 today, may continue its slide after the world's major central banks signaled they will allow the currency to extend its slide, a Bloomberg survey indicates.

``For companies, a euro between $1.10 and $1.20 is pain- free,'' the DIHK's Wansleben said. ``Now we've reached the zone of pain, it's starting to hurt really badly.''

The International Monetary Fund on Nov. 2 pared its 2005 growth estimate for Germany to 1.5 percent, the worst predicted performance for any of the Group of Seven nations.