Germany's mysterious recovery 

Scott Sumner 

In the past 10 years Germany as gone from being the "sick man of Europe" to the star of the eurozone. This partly reflects the strong job creation that preceded the recession, perhaps due to the labor market reforms of 2003. However the post-2007 performance is even more amazing. There was almost no increase in unemployment during the recession, and the unemployment rate has fallen to relatively low levels during the recovery.

Why has Germany's unemployment rate fallen 3 points since the end of 2007, while America's is still 2 points higher?

I would suggest that one straightforward clue can be deduced from looking at population changes from 2000 to 2008 (assuming Google's handy time charts can be trusted)

Germany's population fell by about 100,000 (-0.1%) from 2000 to 2008. Germany used to have a lot of immigration from Turkey, but the country has been quietly cutting back on that as it turned out that the Turks quickly stopped working and went on welfare. Ironically, some of the denunciations of Thilo Sarrazin's bestseller against mass immigration, Germany Abolishes Itself, no doubt came from insiders who agreed with it but didn't want to draw attention to the fact that they'd been implementing some of it avant la lettre.

In contrast, the population of the U.S. grew by about 21,800,000 from 2000 to 2008 (+7.8% in just 8 years).

Even more strikingly, Spain's population grew from by 5,200,000 (+13.1%).

During the 2000 to 2008 period, in contrast to tightening-up Germany, the U.S. and Spain both had similar immigration policies focused on importing large numbers of Latin Americans. The Spanish theory was that they would get better Latin Americans than the Americans because the Latin immigrants already spoke the national language of Spain so they would be more economically productive faster. Also, because it's more expensive to get to Spain from Latin America, Spain expected to get a higher class of Latin American immigrant.

These Spanish immigration ideas actually seem pretty sensible compared to the lowbrow, emotional American views, as enunciated by President Bush in a Presidential Debate in 2004:

"... you're going to come here if you're worth your salt ..."

But, being slightly smarter about immigration than George W. Bush hasn't saved Spain from catastrophe. Currently, the unemployment rate in Germany is 5.1% and in Spain it's 25.8%.

Obviously, there are a lot of other things going on in these comparisons, such as the Euro.

But, just looking at these very simple numbers explains a lot.