Labour Markets and Employment Policy series
Edited by Jacqueline O’Reilly
Jacqueline O’Reilly and Silke Bothfeld1 There has been a lively debate in recent years about the strengths, weaknesses and sustainability of a social market economy in Germany. The ‘German model’ has in the past been characterized by ‘diversiﬁed quality production’, associated with consensual industrial relations traditions, low levels of income inequality, high levels of social welfare and strong economic performance (Streeck, 1992; 1997; 2001a; Carlin and Soskice, 1997; Flecker and Schulten, 1999; Hall and Soskice, 2001). However, plagued by rising and persistent levels of unemployment, Germany seems to have missed out on the ‘job wonder’ enjoyed by other European countries (Werner, 1999). This is despite the fact that productivity in the 1990s increased, real unit labour costs fell, there was an above-average increase in export goods and a lower increase in real wages (Bispinck and Schulten, 2000; Heise et al., 2000; Streeck, 2001b). These developments have left many commentators and researchers debating the need for a thoroughgoing reform of labour market, social and economic policies. While some current labour market problems are related to the impact of uniﬁcation with the former East Germany, others were inherent in the existing institutional arrangements apparent before 1989 (Oﬀe, 1998). These concerns are partly reﬂected in the long-term concern with the ‘Standortdebatte’ (Eichhorst et al., 2001). This debate is about the global location of Germany as an attractive place for investment, implying that existing institutional arrangements make German labour very expensive and uncompetitive, as well as having an industrial relations...
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