Productivity growth is a nice thing to have. You – as an individual or a whole economy – can produce more goods and services without working any harder, or work shorter hours while maintaining material living standards.

So Christian Odendahl is right to be concerned about the just-released 2015 GDP figures for Germany, which show that productivity has still failed to pick up noticeably since recovering from the crisis. Output per working hour in Germany continues to rise at the sluggish pace of around ½ of a percentage point per annum. In the period between unification and the last year of the pre-crisis boom productivity growth had been around 1.8%.

Here is a graph showing the German productivity trend. (This is essentially the same graph as Odendahl’s, although for reasons that will soon become apparent, I use annual European data.)

Figure 1: Productivity growth in Germany, GDP per working hour, annual % change

(Source: AMECO)

The steady decline is clear, interrupted by the collapse and then initial recovery during the crisis. Odendahl briefly discusses some reasons and remedies for the German trend. In fact, hand-wringing about sluggish German productivity is not new. Back in the early and mid-2000s Adam Posen (subsequently Bank of England governor, now at the Peterson Institute) did the rounds with dire tales of German stagnation and the deep structural reasons for it located in German political economy: its banking sector, the cloying influence of its consensual industrial relations system and so on (e.g. here and here). Meanwhile German economists such as Hans-Werner Sinn were asking rhetorically whether Germany could still be saved (Ist Deutschland noch zu retten?). As we now know, it could.

Before jumping to the conclusion that German institutions are broken and need fixing, a simple exercise is to compare German performance to that of its European peers. [Read more…]