Archive for the ‘Germany’ Category

For the New York Times, Stefan Homburg, professor of economics, presents three reasons why Germany should leave the Euro zone:

Germany Should Leave

The protective measures of the Maastricht treaty have all been breached.

It makes no sense to export on credit when the credit is ultimately repaid by the German taxpayer.

Adherence to the common currency is apt to poison Europe’s political atmosphere all the more.


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Crowded seminar rooms, lecture halls bursting at the seams, record-high enrollment numbers, and frequent riots among students: all this summarizes observations from various universities across Europe in the past years. In Germany, the total number of students has risen by some 35% in the last ten years alone. The same holds true for Switzerland and other countries. Many universities now have twice as many students enrolled as their capacity would allow.

This gives rise to the question why there are so many young people attending university these days. As far as I can see there are several possible explanations. Let us take a look at each one separately.

First of all, one might argue that structural change has fundamentally changed skill and knowledge requirements in the labor market. Due to technological advancements young people now have to develop more advanced skills. And to acquire them takes several years of studying at the university.

The problem with explanation is that many students nowadays leave the university without being properly prepared for any job in the labor market. In fact, initial salaries after finishing a bachelor’s or master’s program are often lower than after an apprenticeship with some years of work experience. This may be because having a diploma in cultural or media sciences does not increase productivity enough to justify any higher income. Especially when compared with on-the-job training and actual experience in a profession.

A second explanation for record-high enrolment numbers could be the increase in household incomes. Unlike in previous times, today most parents can afford to support their children up to the age of, say, 25. This enables young people to postpone work and spend more time doing what satisfies them. There is no doubt that despite some annoyance due to exams and seminar papers, being a student is far less tedious than having a job in the private economy. This is especially true for all those students in programs of dubious academic quality and challenge. After having fulfilled the duties of school, spending several years dealing with “something interesting” while having a lot of leisure time to meet friends is simply a tempting option. Yes, students live on a small budget but often that budget allows for a decent standard of living which may include iPhones and holidays.

This leads to a third reason for today’s crowded universities: the absence of tuition. While there may be some good arguments to subsidize tertiary education, it ought to be hard to justify a 100 percent subsidy. However, most students in Germany, Austria, or Switzerland hardly pay any tuition or fees. This artificially low price obviously spurs demand. And it does so beyond what would be reasonable. The more university studies are subsidized, the lower the incentive of students to carefully decide whether or not to study, to choose the most suitable program, and to finish studies as successful and early as possible.

An obvious problem with the third argument is that enrolment numbers have increased in countries with high tuition as well. However, it certainly plays some role in those countries with low tuition fees.

A fourth argument that is often put forward is the decline in academic standards. Unless you assume that young people today are way more intelligent than those in previous generations, you will have a hard time to explain why so many teenagers today are able to finish high school, college, and finally get a university degree. In the past, only a small fraction of the population in Germany earned the qualification for university studies. Today that fraction has increased to about fifty percent.

It seems that a simple confusion of correlation and causality might have something to do with that increase. Politicians have long seen the unemployment statistics which show that those with more years of schooling are doing much better in the labor market. The straightforward (and naïve) conclusion has been that more young people must stay in school for 12 or 13 years and ideally acquire a university degree afterwards. But since neither the quality of teaching nor the intelligence of students has increased much, only a lowering of standards could enable more students to accomplish that goal.

It is no wonder that any lowering of standards also lowers the value of academic degrees. As a result employers will ask applicants for ever higher degrees. Today it takes 13 years of schooling to be able to start an apprenticeship at a local savings bank in Germany. In the past, ten years were sufficient. This is not because the job or its requirements have changed. It is just because banks take into account the lower standards in schools.

Going back to the initial question why enrolment numbers have increased so dramatically, I would argue that it is the result of several well-intentioned but ultimately flawed policies. Studying at a university is artificially cheap, universities offer a whole array of programs that meet students’ interests but have dubious value in the labor market, and academic degrees have lost much of their past-time reputation as a result of lowered standards.

Today it takes only a 15-minute walk across almost any campus to see that something is wrong with tertiary education. A university ought to be a place of higher academic work where people focus on learning and doing research. Having a look at posters, leaflets, and students these days, universities more and more seem to be a place where young people gather around to enjoy their time.

I could be totally fine with that. But I cannot since the same people later on complain about dismal job opportunities, because they disturb and distract those students who do want to learn and study, and because of the high subsidies for tertiary education.

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The other day I did some math to figure out the real cost of taxes and social security in Germany. Here is what I got for an average worker with a monthly gross income of 2’500 euro:

The employer has to pay 496.- euro in social security contributions. (As explained recently, this is paid by the employer but borne by the employee.)

Then there is 518.- euro in social security contributions to be paid by the employee, as well as 206.- euro in taxes (income, church, solidarity).

Overall the employee creates more than 3’000 euro in value. This is because the employer would not hire her if the total labor cost exceeded the value created. But out of the 3’000 euro, the employee only gets about 1’775 euro transferred to her bank account. That is, the average worker in Germany with a decent monthly income pays 34% of her value added to social security, 7% is deducted by taxation, and only 59% appears on her bank account. And of course this is only the direct taxation: if she decides to take that money from her bank account and buy something, the usual VAT is 19% (or 7% on food).

The bottom line is that even if you only have a decent income, in Germany more that 40% of your value added is confiscated by the government.

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It has been quite a while since my last post. The reason is that I spent the last couple of days in Mainz, Germany. A very pleasant city, I have to say:

Mainz – Rhine riverside

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berlin to zurich

Certainly a good decision to choose Swiss International for the trip to Berlin. The airline’s service is outstanding, its punctuality notorious, and its prices (sometimes) not much higher than what its rivals charge. Besides, you get a piece of Swiss chocolate on each flight.

Here is a bunch of pictures I took on my way back to Zurich:

SWISS Airbus A319

Inside the airplane

Superb combination: beer above the clouds

Aerial perspective while approaching Switzerland

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As promised yesterday, here are some further impressions from Germany’s capital:

Strasse des 17. Juni, commemorating the uprising of East Berliners on 17 June 1953

Waiting for the city train

Some random bicycle

Pint of Guinness in a bar

Window meets art

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sights of berlin

It has been a while since my last blog entry, mainly because I spent a few days in Germany’s capital city Berlin to visit friends. Truth be told, the city is great. But it is quite different from what I expected Berlin to be.

  • First, it is not as ‘alternative’ as you might think. Yes, it is multicultural and cosmopolitan – especially young Spaniards have found a new place of residence here. But overall, Berlin is not all too different from other German cities.
  • Which directly leads to my second point: Berlin is not that cheap any more. Rents have increased rather drastically and most other things cost about the same as in other parts of Germany.
  • Third, Berlin’s citizens are not particularly impolite. Quite on the contrary, I have not met so many nice people in a city since my last visit to Munich. All in all, a very exhilarating experience to see that things can actually be better than expected.

To provide you with some impressions, I took a whole bunch of pictures. We start today with some of Berlin’s famous sights.

Brandenburg Gate, one of Germany's most well-known landmarks

Reichstag, meeting place of the Bundestag, Germany's parliament

Bundeskanzleramt, home of Chancellor Angela Merkel

Bellevue Palace, official residence of the President of Germany

Fernsehturm, Berlin's 368m TV tower, build in the 1960s by the GDR

Fernsehturm at night, seen from the Museum Island

Holocaust Memorial, 2'711 concrete slabs, inaugurated in 2005


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High unemployment rates are top of the agenda for policymakers in most Western countries these days. At the same time, the German labor market is doing surprisingly well. Many have called the relatively low and even declining unemployment rate a job miracle.

Unemployment rates in various countries // source:

In a recent article for VoxEU, Michael Burda (HU Berlin) and Jennifer Hunt (Rutgers) discuss the low unemployment rate in Germany and provide a much more subtle explanation:

The German labour-market miracle 

The extraordinary performance of the German labour market in 2008–2009 can most clearly be tied to a possibly one-off event with less favourable social welfare implications. In other words, firms had less need to lay off than in a typical recession, because an unusual lack of confidence in the preceding boom had made them reticent to hire.

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For many years German politicians, parents, and scientists have been discussing whether it should take children eight or nine years to finish the so-called Gymnasium (secondary education). The debate began a few years ago when more and more states (re-)introduced the so-called G8, an eight year Gymnasium. Since 1949, all states of West Germany had 9-year schools that lead to the Abitur (A-levels).

In theory, the reduction by one year was intended to save resources and make students more competitive in a global economy. But many parents (and teachers) have seen their children suffering from the additional workload. Despite the idea that G8 would raise weekly work hours for students only from 30 to 33, many students began to struggle.

From an economic point of view, it is quite difficult to follow the debate. How can there be any doubt about heterogeneous skills among children, in other words about the fact that students need different kinds of schooling to practice their skills. Some students would be able to finish their A-levels after seven years while others might need ten. Why on earth is there no flexibility?

One answer might be straightforward: because there is no competition in the educational system. Public schools do not compete with each other but are forced to follow rules set at state or even national level. They are not free to figure out new ways to better educate our children. Neither can they offer various programs that would suit students with different skills.

It is to some extent astonishing that parents do not raise a hue and cry about this kind of heavy consumer mistreatment. Especially since their children are more and more suffering from the limited variety and poor quality that public schools offer these days.

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Yesterday, CNBC broadcasted a pretty interesting documentary about the world’s most admired company: BMW

Some critics have dismissed BMW as over-engineered, over-hyped, and over-priced. But what about the legions of imitators and buyers?

On its website, CNBC has also prepared some further information:

BMW: A Driving Obsession 

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