German Unemployment Drops Slightly in September

The latest figures from the Federal Labor Office show a slight decrease in Germany's unemployment rate and come one week before German Chancellor Gerhard Schröder’s controversial labor and welfare reforms are to be voted on in parliament.

The statistics released on Thursday show that the number of jobless fell in the month of September to 4.207 million nationwide. That meant there were 107,000 less jobless people than in August, but the figure was still 265,000 higher than in Sept. 2002. The unemployment rate dropped to 10.1 percent, down 0.3 percent from August.

Florian Gerster, head of the Nuremberg-based Federal Labor Office, explained that seasonally adjusted unemployment figures had shrunk by 14,000 to 4.392 million despite the continuing economic malaise. He added that the decrease was sharper than normal for the end of summer holidays in Germany. Economists often put more stock in the seasonally adjusted figures because they smooth out the sharp changes that occur due to weather and holidays.

Labor Office links improvement to reforms

Gerster said the main reason for the fall in unemployment could be explained by the sweeping labor market reforms initiated by the center-left coalition government of Social Democrats and Greens last year. While some of the proposals in the chancellor’s controversial economic and labor reform package known as "Agenda 2010" were implemented last year, others are still pending parliamentary approval or remain on the drawing board.

According to the Labor Office, 183,000 jobless persons made use of a new law passed by the government last year called the "Ich AG" (roughly translated as "Me, Inc.") since the beginning of the year. The law, designed to make it easier for people to become self-employed, allows an unemployed person to apply for financial support for three years while setting up a business.

Gerster also pointed out that around 21,300 unemployed persons had found work through personnel service agencies (PSAs) by the end of September. The PSAs, which are also part of the government’s new labor reform policy, are meant to find permanent jobs for unemployed persons through part-time ones.

Analysts cautious

In keeping with the general pessimism about the growth chances for Europe’s largest economy -- government projections put it 0.75 percent this year--Thursday’s surprising fall in jobless figures was met with caution in Germany.

Stefan Bielmeier from the Deutsche Bank told Reuters the new figures didn’t indicate a strong economic upturn. "We’re relying on a sustained improvement of the labor market only in the first quarter of 2004," he said.

Martin Hüfner, chief economist at the HypoVereinsbank, said labor market problems would throw a shadow on the much-hoped for economic recovery in the coming year. "The growth mechanisms aren’t functioning," he said. "If the companies don’t hire people, more demand won’t lead to more private income, it’ll just go up in smoke." He said after flash in the pan growth in the first half of 2004, the growth rate would once again slide in the second half.

Meanwhile, Angela Merkel, who heads the opposition Christian Democrats, cautioned that the figures didn’t signal an economic revival. "I don’t see any other reason for giving the all-clear," she said. "I can’t see any signs of improvement."

Schröder facing uphill reform battle

Despite the Labor Office’s linkage of the dip in unemployment to new labor policies, Chancellor Schröder’s ambtious tax, social system and labor market reforms intended to kickstart the sluggish economy remain deeply unpopular with voters as well as the traditional left-wing of his own party. A recent poll poll taken by Stern magazine found that 58 percent of German voters agreed with the criticism levied against the chancellor's plan by renegade, left-wing Social Democrats.

Many SPD critics accuse Schröder of betraying the party’s roots by pushing reforms that will effectively trim the generous welfare system, cut unemployment benefits, loosen employee protection laws and scale back pensions.

But in light of Germany’s stagnant growth and chronically high unemployment, Schröder has decided he has no alternative other than to push forward with his reform package.