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Cruising at Different Speeds: Similarities and Divergences Between the German and the French Economies

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Cruising at Different Speeds: Similarities and Divergences Between the German and the French Economies 6 ISSN 2443-8022 (online) Cruising at Different Speeds: Similarities and Divergences between the German and the French Economies G. Cléaud, F. de Castro Fernández, J. Durán Laguna, L. Granelli, M. Hallet, A. Jaubertie, C. Maravall Rodriguez, D. Ognyanova, B. Palvolgyi, T. Tsalinski, K.-Y. Weißschädel and J. Ziemendorff DISCUSSION PAPER 103 | JULY 2019 EUROPEAN ECONOMY Economic and EUROPEAN Financial Affairs ECONOMY European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission. Authorised for publication by Carlos Martínez Mongay, Deputy Director-General for Economic and Financial Affairs. LEGAL NOTICE Neither the European Commission nor any person acting on behalf of the European Commission is responsible for the use that might be made of the information contained in this publication. This paper exists in English only and can be downloaded from https://ec.europa.eu/info/publications/economic-and-financial-affairs-publications_en. Luxembourg: Publications Office of the European Union, 2019 PDF ISBN 978-92-79-77440-9 ISSN 2443-8022 doi:10.2765/756955 KC-BD-18-030-EN-N © European Union, 2019 Non-commercial reproduction is authorised provided the source is acknowledged. For any use or reproduction of material that is not under the EU copyright, permission must be sought directly from the copyright holders. European Commission Directorate-General for Economic and Financial Affairs Cruising at Different Speeds: Similarities and Divergences between the German and the French Economies Guillaume Cléaud, Francisco de Castro Fernández, Jorge Durán Laguna, Lucia Granelli, Martin Hallet, Anne Jaubertie, Carlos Maravall Rodriguez, Diana Ognyanova, Balazs Palvolgyi, Tsvetan Tsalinski, Kai-Young Weißschädel and Johannes Ziemendorff Abstract GDP growth rates in France and Germany have differed significantly since the crisis. As a result, per-capita income and employment trends have diverged markedly. This Discussion Paper assesses a number of possible explanatory factors behind these developments and suggests, in particular, that differences in labour-market institutions appear critical. Social partners play a key role in both countries, but the application of collective bargaining at the firm level allows for more flexibility in Germany. However, the higher resilience and flexibility of the German labour market comes at the price of higher market-income inequality and poverty across individuals and age groups. There are also differences in economic structure, especially in the public sector, but to some extent also in the private sector, while nominal divergences appear less relevant in explaining recent income divergences. Although Germany’s growth model has allowed it to benefit from the strong post-crisis recovery in the global economy, especially among emerging economies – reflecting Germany’s favourable composition of products and export markets – it also makes it more exposed to swings in the global cycle. France’s growth model, by contrast, has relied more on domestic demand. Together with a larger public sector, this has helped to smoothen economic cycles, but has also implied some losses in cost competitiveness and a significantly higher tax burden. JEL Classification: E0, E2, E6, H0, H2, H6, J3, J5, O3, O4, O5 Keywords: Cruising at Different Speeds: Similarities and divergences between the German and the French economies, income-per-capita differentials, productivity. Contact: European Commission, Directorate-General for Economic and Financial Affairs, Annika Eriksgård Melander, [email protected]; and Martin Hallet, [email protected]. EUROPEAN ECONOMY Discussion Paper 103 ACKNOWLEDGEMENTS This report was guided and coordinated by Servaas Deroose and Carlos Martínez Mongay (former and current Deputy Director-General), Manfred Bergmann (Director), Annika Eriksgård Melander and Martin Hallet (Advisers), Moises Orellana and Javier Yaniz Igal (Heads of unit), and Magdalena Morgese Borys and Dominique Simonis (Deputy heads of unit). It is based on the following contributions by DG ECFIN staff: “Stylised facts regarding differences in per capita income between Germany and France” by Guillaume Cléaud and Tsvetan Tsalinski “A comparative view on similarities and divergences between the German and the French economies: the long-term picture” by Martin Hallet “Labour Market Institutions in Germany and France – How do they compare?” by Lucia Granelli and Johannes Ziemendorff “Social and regional outcomes in Germany and France” by Francisco de Castro Fernández, Lucia Granelli, Anne Jaubertie, Balazs Palvolgyi, Johannes Ziemendorff “Nominal divergences between Germany and France” by Jorge Durán Laguna “Comparison of Public Finances between France and Germany” by Francisco de Castro Fernández and Kai-Young Weißschädel “State-owned enterprises in Germany and France” by Carlos Maravall Rodriguez “Productivity developments in Germany and France” by Diana Ognyanova “Business environment, corporate dynamics, and research and innovation in Germany and France” by Diana Ognyanova Helpful comments to individual chapters were provided by Benjamin Angel, Ulrich Clemens, Servaas Deroose, Sven Langedijk, Karl Pichelmann and Matteo Salto in DG ECFIN as well as Alfonso Arpaia in DG EMPL, Thomas Elsner in DG GROW and Roberto Martino, Urbano Tocci and Stephane Vankalck in DG RTD. Technical assistance was provided by Michel Gerday and Lorise Moreau. The report reflects information up until 24 April 2019, the same as for the European economic forecast spring 2019. 2 CONTENTS Executive summary 9 1. Introduction 19 2. Some stylised facts 21 2.1. Recent income and labour market developments 21 2.2. Price and inflation differentials 27 2.3. The longer-term picture 28 3. Monetary developments and fiscal policy stance(s) 35 3.1. The role of monetary and financial conditions: the monetary policy stance 35 3.2. The fiscal policy stances 40 3.3. Summary of the main findings on nominal divergences 44 4. Labour market institutions and outcomes 45 4.1. Labour market institutions 45 4.2. Social and regional outcomes 60 4.3. Summary of the main labour-market features and challenges 77 5. Differences in economic structures 80 5.1. The public sector 80 5.2. The private sector 104 5.3. Summary of main findings on economic structures 138 6. Are the divergences likely to continue? 140 References 144 Abbreviations 158 3 LIST OF TABLES 2.1. GDP per capita average growth rate 21 2.2. Gross value added in % of total, 2018 32 3.1. Estimated impact on growth differentials of differences in the fiscal stance 42 4.1. Minimum wage and cost of labour 50 4.2. The OECD indicators on Employment Protection Legislation (2013) 52 4.3. Evolution of Gini coefficients by NUTS 2 regions 72 5.1. Importance of state-owned enterprises 94 5.2. Scope of central government SOEs in France and Germany, some examples 95 5.3. Top 10 leading sectors for non-price competitiveness, France and Germany, 2016 96 5.4. Return on capital employed, French and German SOEs, energy sector: electricity and gas. 100 5.5. Hard cores anchored to financial groups 100 LIST OF GRAPHS 0.1. Share in euro area GDP, 2018 9 0.2. GDP per capita in current prices, 1991-2018 9 0.3. Unemployment rate 1991-2018 10 0.4. Exports and imports of goods and services, 1991-2018 10 0.5. Consumer price inflation 11 0.6. Public expenditure 1991-2018 14 1.1. Shares in euro area and EU GDP, 2018 19 2.1. GDP per capita and average hourly labour productivity growth 21 2.2. Main drivers of per capita GDP 22 2.3. Labour market performance 23 2.4. Incidence of part-time work, 2018 25 2.5. Decomposition of the per capita GDP difference 26 2.6. Determinants of the difference in hourly productivity dynamics between Germany and France 27 2.7. Consumer price inflation 28 2.8. GDP (in constant prices) and GDP per capita (in Purchasing Power Standards, PPS) in France in % of Germany, 1960-2018 29 2.9. Economic growth and trade openness in Germany and France, 1961-2018 30 2.12. Net lending (+) or net borrowing (-) of the German and French economies 1991-2018 (% of GDP) 31 2.10. Share of intra-EU exports of goods in % of total exports of goods, 1999-2018 32 2.11. Growth of non-tradables over tradables 32 2.13. Investment and savings in Germany and France 1960-2018, in % of GDP 33 3.1. ECB policy rates and the Eurosystem balance sheet size 35 3.2. Output gaps and inflation since 1996 35 4 3.3. Exposure to Greece, Ireland, Portugal and Spain, by nationality of banks 36 3.4. Cost of borrowing composite index for non-financial corporations 40 3.5. Primary expenditure ratios and cyclically adjusted primary balances 40 3.6. Growth differential between Germany and France 41 3.7. Relationship between differences in growth of GDP per head (France-Germany) and differences in their fiscal stance 42 3.8. Fiscal stance and its relation with the cycle 42 3.9. Nominal and real long-term interest rate differentials (France-Germany) 43 3.10. Automatic stabilisers in Germany and France 43 4.1. Union density 45 4.2. Unit labour cost evolution and decomposition 49 4.3. Distribution of hourly gross wages, 2014 49 4.4. Temporary employment in manufacturing and market services 53 4.5. Court specialisation and outcomes 54 4.6. Youth unemployment rate by age and education level 57 4.7. Youth not in education, employment or training 57 4.8. Unit labour cost by sector 58 4.9. Employment by sector (yearly growth rate) 59 4.11. Share of workers who earn low hourly wages in the EU, 2014 60 4.10. Unemployment rates 60 4.12.
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