Germany - Keeping People at Home?

[Update; Stefan Karlsson moves in with some interesting comments on my post below and even throws in a blogroll addition of Alpha.Sources too (thanks for that)]  

As you can see in the post just above this one exams are forcing me to quit the blogosphere for a couple of days. As a last spurt I wanted to comment on a couple of things. First of all, the I note how the ECB is increasingly coming into the spotlight. A couple of days ago we thus got the governing council's über hawk Axel Weber who ventured the idea that perhaps interest rates in the Eurozone were too low putting the final nail in the coffin of everyone who thought that the ECB would cut in Q2. The econsphere's in house Austrian economics analyst Stefan Karlsson moved in behind Weber noting that of course the Eurozone interest rates were not high enough. An inflation running at 3.6% as well as growth in the aggregate monetary base (the M3) seem to merit these conclusions but the looking at the data the situation is a bit more complicated as I tried to argue in a large recent note. Of course, at this point we also really ought to put the hawks' argument to the test. How far and long should the ECB raise rates in order to bring down inflation to the target (2%) not to speak of bringing the M3 growth within range of its 3-4% growth target? Given that there must be a short term nominal rate target for achieving these aims and a path dotted out through which to reach this rate level what would the ECB do to Spain, Italy, Portugal, Greece etc not to mention Germany itself who is bound to slow too.

So, that was a small intermezzo on the ECB in relation to my recent note on the topic. In reality, what I wanted to spend a little more time on relates to something I mentioned on international migration in my previous post on global demographics (which is already stirring up a hot pot of comments over at Demographics.Matter) where I reviewed a recent paper by David S. Reher. In this post I latched on to a point made by Mr. Reher in the context of international migration and how some countries might see adverse effects from exporting its surplus labour to other countries. The argument was specifically centered on transition economies but, as you can see below, the argument can also be expanded. The main issue becomes one of rearranging those proverbial deck chairs on the Titanic (i.e. to get the best spot relative to watching the inevitable demise of the ship) as many countries across the globe seek to mitigate a labour dearth by importing foreign labour. The allure of such policies should not be neglected. Relative to actually doing something about the underlying issue (i.e. nudging fertility back up) receiving foreign labour becomes an instant, if only temporaneous, fix for labour shortages and even in some cases the source of unprecedented economic booms (Spain would be an excellent example here). In this present context it would serve us well to take a trip to Germany and by derivate to an eloquent piece in the IHT (aggregated from Reuters) by Erik Kirshbaum. As Kirshbaum neat points out we all know that Germany is hard at work trying to export its way out of economic trouble but also, as it were, into trouble. In this way, it is one thing shipping off semi-conductors and cars but quite another to ship out human capital the latter becoming an increasingly scarcer resource in Germany.

Still plagued by high unemployment owing to the turmoil of reunification in 1990 and rigid labor laws, Germany has been helping its skilled and less-skilled jobless workers match up with foreign employers searching for manpower. The country has also been offering financial support to cover moving and transportation costs for unemployed Germans searching for jobs across the European Union, and even as far away as Australia and Canada. In one typical example, a newspaper in Fuerteventura, one of the Canary Islands of Spain, was recently filled with advertisements placed by Germans hunting for jobs.

"German seeks job in hotels or tourism," read one. "All relocation and travel costs paid for by German Labor Office."

Germany had an unemployment rate of 8 percent in February, about one percentage point higher than the euro zone average: 3.6 million people in the country are without jobs and more than 155,000 Germans emigrate each year. Many thousands have been helped by the Labor Office's International Placement Service in Bonn, which offers to some "Mobilitãtshilfe" (mobility assistance) or a "Mobilitãtsprãmie" (mobility bonus). The financing, known as the "Mobi," helps cover moving and travel costs for jobless Germans and their families. It is discretionary and aimed at those with job prospects abroad, although it is also available for relocations inside Germany.

"The mobility assistance benefits can be used for moves to anywhere in the world," said Sabine Seidler, spokeswoman for the International Placement Service in Bonn. "They're granted on a case-by-case basis and there's no upper limit on the sum involved. Applicants usually must have a contract and meet certain criteria. The main purpose is to help those who've lost their jobs find work as quickly as possible."

As we can see here the policy of helping people to find work abroad was and, perhaps much worryingly, is being encouraged. Re-locations inside Germany are of course one thing but actually helping people to leave Germany seems to be extraordinarily ill-advised at this point. Obviously, we can all see how it helps perk up unemployment statistics but as a long term policy it is anything but sound. Some however, are beginning to sound the alarm ...

In Germany, the assistance is controversial. Economists and industry leaders say paying people to leave a country with a shrinking population and one of the lowest birth rates in the world is a recipe for disaster. Shortages of skilled labor are now acute in industries like engineering and car production, but they also loom in sectors like retailing, health care and finance. Meanwhile, "depopulation" has become an explosive issue in some areas, especially in the formerly Communist east.

"It's obviously better if they find work in Germany and pay tax, as well as contribute to the state's social welfare system," said Werner Eichhorst, deputy director of labor policy at the Institute for the Study of Labor in Bonn.

"In the short term, emigration takes people off jobless rolls, but in the long term we're losing workers with skills," he said. "It's usually the best and most flexible who leave. They're also often at ages where they have children. They're lost to Germany and obviously their children won't contribute later either."

The article also quotes Deutsche Bank's chief economist Norbert Walter for saying that even though he formally supports the mobility aid Germany should try kick it into reverse. Specifically Walter mentions how Germany will need to attract a significant amount of immigration in the coming years to compensate for the decline in the labour force. Right on cue Mr. Walter. Unfortunately, with Germany's size and the region's demographic trends (e.g. in Eastern Europe) this is going to be anything but the trifle Mr. Walter seems to think. Essentially, I don't think I can express myself much clearer than this. Germany desperately needs to instigate a sound policy on migration. The current one which in some ways encourages skilled labour to leave is way past its time and peak.