Offshoring and Labour Market Reforms: Modelling the German Experience

45 Pages Posted: 30 Mar 2015

See all articles by Thomas Beissinger

Thomas Beissinger

University of Hohenheim; IZA Institute of Labor Economics

Nathalie Chusseau

University of Lille I - EQUIPPE; MESHS-CNRS

Joël Hellier

LEM-CNRS (UMR 9221)

Abstract

A usual interpretation of the high performance of the German economy since 2005 is that the Hartz labour market reforms have boosted German competitiveness, resulting in higher exports, higher production and lower unemployment. This explanation is at odds with the sequence of observed facts. We propose and model an alternative scenario in which offshoring explains the gains in competitiveness but increases unemployment and inequality, and the subsequent labour market reforms lower unemployment by lessening the reservation wage and expanding the non-tradable sector. The model replicates the developments of the German economy since 1995: 1) Germany offshores more intensively than other advanced countries; 2) The increase in competitiveness and in the exports/production ratio occurs before the implementation of the labour market reform, and this comes with both higher inequality and higher unemployment; 3) The implementation of the reform reduces unemployment, but also decreases the exports/production ratio and increases inequality. The model also predicts that the reduction in unemployment in Germany would have occurred without the Hartz reforms, but later and less intensively. We finally discuss the possible extension of this 'strategy' to other Eurozone countries, and alternative policies that activate similar mechanisms without increasing inequality.

Keywords: Germany, inequality, labour market reform, offshoring, unemployment

JEL Classification: H55, J31, J65

Suggested Citation

Beissinger, Thomas and Chusseau, Nathalie and Hellier, Joël, Offshoring and Labour Market Reforms: Modelling the German Experience. IZA Discussion Paper No. 8920, Available at SSRN: https://ssrn.com/abstract=2586423 or http://dx.doi.org/10.2139/ssrn.2586423

Thomas Beissinger (Contact Author)

University of Hohenheim ( email )

Schloss Museumsflügel
Stuttgart, 70593
Germany

HOME PAGE: http://labour.uni-hohenheim.de/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Nathalie Chusseau

University of Lille I - EQUIPPE ( email )

Université Lille 1 Sciences et Technologies
Faculté des Sciences Economiques et Sociales
Villeneuve d'Ascq, 59655
France

MESHS-CNRS ( email )

2 Rue des Canonniers
Lille, 59000
France

Joël Hellier

LEM-CNRS (UMR 9221) ( email )

104, avenue du peuple Belge
Villeneuve d'Ascq Cedex, 59655
France

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