3 June 2011 - No.

401

Do Germans work more than Southern Europeans? No, they work much less, and not more intensely

Chancellor Angela Merkel has highlighted the short working time of the Southern Europeans as one of the main reasons for their economic problems; she has actually suggested that the length of holidays and the retirement age should be harmonised for the Southern euro-zone countries to "deserve" Germany's support. We will first compare the working time in Germany and in the Southern eurozone countries (France, Italy, Spain, Portugal and Greece) over one year and over their lifetime. We will then try to identify the factors, other than the working time, that can explain the difference between the economic situation of Germany and the Southern euro-zone countries: productivity, productive specialisation, labour cost, savings; quality of the labour force. We show that: the Germans work much less (over one year, over their lifetime) than the Southern Europeans; and they do not work more intensely either; Germany's better economic performance is above all explained by the innovation drive and by the higher household and corporate savings rate.

ECONOMIC RESEARCH Author: Patrick Artus

The major differences between Germany and the Southern euro-zone countries

We use the term "Southern euro zone" for France, Italy, Spain, Portugal and Greece. We know the major differences between Germany and the Southern euro-zone countries, which are: the weight of industry (Charts 1A and B), which is higher in Germany (Italy is not a "Southern" country from this point of view); as a result, foreign trade, where Germany runs a surplus while the Southern euro zone runs a deficit (Charts 2A and B), due to Germany's far greater exposure to countries enjoying rapid growth (Chart 2C); the use of credit prior to the crisis - and fiscal deficits since the crisis - to boost growth in the Southern euro zone, but not in Germany (Charts 3A and B); this is currently weakening the economy of the Southern euro-zone countries, given the deleveraging needed in the private as well as in the public sector; the ability to obtain growth in the current situation, which is markedly better in Germany (Chart 4), since there is no need for deleveraging in Germany, and since the high corporate profitability (Chart 5A) and the low level of unemployment (Chart 5B) is paving the way for quite rapid wage growth (Charts 5C and D), which is not the case in the Southern euro-zone countries.
Chart 1B Value added in the m anufacturing sector (in volum e term s, as % of GDP)
Germany France P o rtugal Italy Greece

Chart 1A Manufacturing em ploym ent (as % of total)

Germany Spain France P o rtugal Italy Greece

24 22 20 18 16 14 12
Sources: Dat astream, Eurost at, Natixis

24 22 20 18 16 14 12 10 99 00 01 02 03 04 05 06 07 08 09 10 11

24 22 20 18 16 14 12 10 8 6

Spain

24 22 20 18 16 14 12 10 8

10

Sources: Dat astream, EIU, OECD, Eurostat , Natixis

99 00 01 02 03 04 05 06 07 08 09 10 11

Chart 2A Trade balance (EUR bn, annualised)

Germany Spain France P o rtugal Italy Greece

Chart 2B Current-account balance (as % of GDP)

Germany Spain France P o rtugal Italy Greece

10 250 200 150 100 50 0 -50 -100 -150 5 0 -5 -10 -15

Sources: Dat astream, Natixis

10 5 0 -5 -10 -15 -20 99 00 01 02 03 04 05 06 07 08 09 10 11

250 200 150 100 50 0 -50 -100 -150 99 00 01 02 03 04 05 06 07 08 09 10 11

Sources: Datast ream, Nat ixis

-20

Flash 2011 401- 2

Chart 2C Exports to em erging countries as a w hole incl. Russia and OPEC (as % of GDP)
Germany France Greece Spain P o rtugal Italy

Chart 3A Loans to the private sector* (Y/Y as %) 45 40 12 10 8 6 4 2 35 30 25 20 15 10 5 0

Sources: Dat astream, Natixis

Germany Italy P o rtugal

(*) Households + companies

France Spain Greece

45 40 35 30 25 20 15 10 5 0 -5

12 10 8 6 4 2

Sources: Dat astream, Natixis

0 99 00 01 02 03 04 05 06 07 08 09 10 11

-5 99 00 01 02 03 04 05 06 07 08 09 10 11

Chart 3B Fiscal deficit (as % of GDP)

Germany France P o rtugal Italy Greece

Chart 4 Real GDP grow th (Y/Y as %)

Germany France P o rtugal Italy Greece

4 0 -4 -8 -12

Spain

4 0 -4 -8 -12

8 6 4 2 0 -2 -4 -6

Spain

8 6 4 2 0 -2 -4 -6

Sources: Datast ream, Nat ixis forecasts

Sources: Datast ream, Nat ixis forecasts

-16 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-16

-8 99 00 01 02 03 04 05 06 07 08 09 10 11 12

-8

Chart 5A Self-financing rate

Germany Spain France P o rtugal Italy Greece

Chart 5B Unem ploym ent rate 21

Germany France Spain Greece

21
Italy P o rtugal

180 160 140 120 100 80 60 40

Sources: Dat astream, Eurost at, Natixis

180 160 140 120 100 80 60 40 20 99 00 01 02 03 04 05 06 07 08 09 10 11

18 15 12 9 6 3

18 15 12 9 6

20

Sources: Dat astream, Eurost at, Nat ixis

99 00 01 02 03 04 05 06 07 08 09 10 11

Flash 2011 401 - 3

Chart 5C Nom inal per capita w age (Y/Y as %)

Germany Spain France P o rtugal Italy Greece

Chart 5D Real per capita w age (deflated by consum er price deflator, Y/Y as %)
Germany France P o rtugal Italy Greece

12 9 6 3 0 -3
Sources: Dat astream, ECB, OECD, Nat ixis

12 9 6 3 0 -3 -6 99 00 01 02 03 04 05 06 07 08 09 10 11 8 6 4 2 0 -2 -4 -6 -8 -10

Spain

Sources: Dat astream, national sources, Eurostat , Natixis

-6

8 6 4 2 0 -2 -4 -6 -8 -10

99 00 01 02 03 04 05 06 07 08 09 10 11

Is Germany's economic advantage over the Southern euro-zone countries a result of the working time?

Angela Merkels recent statements about the length of holidays and the retirement age, blame the short working time (over the year, over a lifetime) in the Southern euro-zone countries for these countries problems relative to Germany. What is the real situation? Table 1 shows that the annual working time is much shorter in Germany than in the other countries (France, Spain, Italy, Portugal and Greece); Tables 2A and B show that while the legal retirement age is high in Germany (65 years, and 67 years in the future), the effective average retirement age is the same in Germany as in Spain, Portugal and Greece.
Table 1 Average annual working time (number of hours)

1999 Germany France Spain Italy Portugal Greece 1,492 1,630 1,732 1,876 1,812 2,107

2000 1,473 1,591 1,731 1,861 1,765 2,121

2001 1,458 1,579 1,727 1,843 1,769 2,121

2002 1,445 1,537 1,721 1,831 1,767 2,109

2003 1,439 1,533 1,706 1,826 1,742 2,103

2004 1442 1561 1690 1826 1763 2082

2005 1,434 1,557 1,668 1,819 1,752 2,086

2006 1430 1536 1656 1815 1757 2148

2007 1,431 1,556 1,637 1,816 1,727 2,116

2008 1,430 1,560 1,647 1,807 1,745 2,116

2009 1,390 1,554 1,654 1,773 1,719 2,119

Source: OECD Employment Outlook 2010

Table 2A Effective average retirement age

Germany France Spain Italy Portugal Greece 62.2 60.0 62.3 60.1 62.6 61.5

Sources: Datastream, Eurostat, Natixis

Flash 2011 401- 4

Table 2B European Union Comparison table of basic pension schemes

Eligibility Country Minimum duration Normal retirement age M 65 years W 65 years Early retirement at 60 years with definitive reduction of 3.6% per year M 65 years W 65 years M 60 years W 60 years (62 years in 2018) M 65 years W 60 years M 65 years W 65 years Maximum contribution period Calculation of pension

Germany

5 years

None

Proportional

Spain

15 years o/w 2 years in the past 8 years 1 quarter 12.5 years giving rise to contributions 15 years o/w 2 years in the past 8 years

M 35 years W 35 years M 40 years* W 40 years* * Gradual changeover to 41 years in 2012 M 28 years and 9 months W 28 years and 9 months M 40 years W 40 years

Proportional

France

Proportional Lump-sum and proportional Proportional

Greece Portugal

Sources: OECD, Eurostat

How can Germany's economic performance relative to the Southern euro-zone countries be explained?

So that the working time (over the year, over a lifetime) does not explain Germany's performance. We can then surmise that Germany's economic performance is due to: the level of productivity and productivity gains; the innovation drive and the specialisation in upmarket industry; the control of labour cost; the high private sector savings; the quality of the labour force.

No. 1 - Labour productivity Charts 6A and B show that the performance of Germany's per capita productivity is in line with the average of the "Southern" countries; that of hourly productivity is above average, but not better than that of France or Greece.

Flash 2011 401 - 5

Chart 6A Per capita productivity (1999:Q1 = 100)

Germany France Spain Greece Italy P o rtugal

Chart 6B Hourly labour productivity (1999:1 = 100)

Germany France Greece Italy Spain

130 125 120 115 110 105 100 95 90

130 125 120 115 110 105 100 95

120 115 110 105 100 95

P o rtugal

120 115 110 105 100 95

Sources: Datast ream, Nat ixis

Sources: Dat astream, Natixis

90

90 99 00 01 02 03 04 05 06 07 08 09 10 11

90

99 00 01 02 03 04 05 06 07 08 09 10 11

No. 2 - Innovation and sophistication of products Germany has maintained its export market shares (Chart 7), which is not the case with the Southern euro-zone countries. This is to a large extent explained by the much greater innovation drive in Germany (Tables 3A and B).
Chart 7 Total exports in value term s (as % of global exports ex Russia and OPEC) 12 10
Germany France Spain Greece

12 10
Italy P o rtugal

8 6 4 2

8 6 4 2

Sources: Dat astream, customs aut horities, Nat ixis

0 99 00 01 02 03 04 05 06 07 08 09 10 11

Table 3A Total expenditure on R&D (as % of GDP)

1999 Germany France Italy Spain Portugal Greece 2.40 2.16 1.02 0.86 0.71 0.60 2000 2.45 2.15 1.05 0.91 0.76 0.59 2001 2.46 2.20 1.09 0.92 0.80 0.58 2002 2.49 2.23 1.13 0.99 0.76 0.57 2003 2.52 2.17 1.11 1.05 0.74 0.57 2004 2.49 2.15 1.10 1.06 0.77 0.55 2005 2.49 2.10 1.09 1.12 0.78 0.59 2006 2.53 2.10 1.13 1.20 0.99 0.58 2007 2.53 2.07 1.18 1.27 1.17 0.58 2008 2.68 2.11 1.23 1.35 1.50 0.58 2009 2.82 2.21 1.27 1.38 1.38 -

Source: Main Science and Technology Indicators 2010

Table 3B Number of triadic patents (per million inhabitants)

1999 Germany France Italy Spain Portugal Greece 77.82 38.04 13.45 2.86 0.50 1.04 2000 75.87 37.50 11.47 3.73 0.40 0.85 2001 75.63 36.93 11.98 4.03 0.60 0.57 2002 74.22 38.26 11.45 4.07 0.70 0.85 2003 69.42 36.40 12.13 3.91 0.90 1.13 2004 69.00 39.11 13.32 5.11 0.65 0.86 2005 70.51 38.60 13.13 5.19 1.24 1.36 2006 73.67 39.31 13.34 5.25 1.03 1.24 2007 74.85 40.52 13.16 5.77 1.13 1.27 2008 73.18 39.66 12.82 5.77 0.94 1.26 2009 77.82 38.04 13.45 2.86 0.50 1.04

Source: Main Science and Technology Indicators 2010

Flash 2011 401- 6

No. 3 - Labour cost Unit wage costs have increased markedly less in Germany than in France, Italy, Spain, Greece or Portugal (Chart 8A); welfare contributions have been reduced in Germany (Chart 8B), but when we look at total labour costs, we can see that only France is in a difficult situation relative to Germany (Table 4).
Chart 8A Unit w age costs (1999:1 = 100) 160 150 140 130 120 110 100 90
Sources: Datast ream, Nat ixis

Chart 8B Welfare contributions (as % of GDP) 160 20 150 140 130 120 110 100 90 12
Sources: Datast ream, OECD, Natixis

Germany Italy P o rtugal

France Spain Greece

Germany Italy P o rtugal

France Spain Greece

20 18 16 14 12 10

18 16 14

10 99 00 01 02 03 04 05 06 07 08 09 10 11

99 00 01 02 03 04 05 06 07 08 09 10 11

Table 4 Hourly wage in industry (incl. welfare contributions, in EUR)

1999 Germany France Italy* Spain* Portugal* Greece* 25.3 23.7 17.5 14.5 6.9 10.6 2000 26.6 24.8 17.9 14.5 7.1 10.9 2001 27.5 25.9 18.6 13.4 7.4 11.5 2002 28.2 26.9 19.6 14.0 7.8 12.2 2003 28.9 27.6 20.6 14.7 8.2 12.9 2004 29.1 28.6 21.7 15.3 8.6 12.2 2005 29.3 29.4 22.3 15.8 8.9 11.8 2006 30.3 30.3 22.9 16.4 9.2 12.6 2007 30.6 31.2 23.5 17.1 9.5 12.9 2008 31.4 33.2 24.3 19.1 9.9 13.3 2009 30.6 33.3 25.1 19.9 10.2 13.8 2010 30.2 33.7 25.6 20.2 10.3 14.1

(*) Series extended with growth in the hourly cost index Sources: Eurostat, INSEE, Natixis

No. 4 - Private sector savings German households and companies save more than households and companies in the Southern euro-zone countries (Charts 9A and B), which also explains the external surpluses.
Chart 9A Gross household savings rate
Germany France P o rtugal Italy Greece

Chart 9B Profits after taxes and interest, before dividends (as % of GDP)
Germany France Greece Italy Spain

20 15 10 5 0

Spain

20 15 10 5 0 24 22 20 18 16 14 12 10 8 6 4

P o rtugal

Sources: Dat astream, Natixis

Sources: Datast ream, AM ECO, Nat ixis

-5 99 00 01 02 03 04 05 06 07 08 09 10 11

-5

24 22 20 18 16 14 12 10 8 6 4

99 00 01 02 03 04 05 06 07 08 09 10 11

Flash 2011 401 - 7

No. 5 - Quality of the labour force There are few Germans with a very low level of education, but the proportion of Germans with higher education is not higher than in France, Spain or Greece (Table 5A), while Portugal and Italy have a clear problem in terms of education. The unskilled unemployment rate is higher in Germany than in the Southern euro-zone countries (Table 5B).
Table 5A Structure of the labour force by level of education (aged 25 to 64)
Germany Higher secondary education and postsecondary non tertiary education 61 61 61 58 58 59 60 59 59 59 59 60 60 France Higher secondary education Tertiary and postsecondary education non tertiary education 38 39 40 40 41 41 41 41 41 41 41 42 43 19 20 21 21 22 23 24 24 24 25 26 27 27 Spain Higher secondary education and postsecondary non tertiary education 12 13 13 14 16 16 17 18 19 21 21 22 22

As %

Lower secondary education

Tertiary education

Lower secondary education

Lower secondary education

Tertiary education

1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

16 17 16 19 18 17 17 17 16 17 17 16 15

23 23 23 23 23 23 23 24 25 25 24 24 25

43 41 39 38 37 36 35 35 34 33 33 31 30

72 69 67 65 62 60 59 57 55 51 50 49 49

16 19 20 21 23 24 24 25 26 28 28 29 29

Italy Higher secondary education and postsecondary non tertiary education 27 32 33 33 33 34 38 37 38 38 39 39

Portugal Higher secondary education Tertiary and postsecondary education non tertiary education 9 10 10 11 11 11 12 13 14 14 14 14 11 8 9 9 9 9 11 13 13 13 14 14

Greece Higher secondary education and postsecondary non tertiary education 25 29 29 31 31 32 33 34 35 36 37 37 38

As %

Lower secondary education

Tertiary education

Lower secondary education

Lower secondary education

Tertiary education

1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

65 59 58 58 57 56 52 51 50 49 48 47

8 9 9 9 10 10 10 12 12 13 14 14

80 82 81 81 80 80 77 75 74 72 73 72

57 56 54 52 51 50 48 47 44 43 41 40 39

17 16 17 17 18 18 19 19 21 21 22 23 23

Sources: Education at a Glance 2010 (OECD)

Flash 2011 401- 8

Table 5B Unemployment rate by level of schooling: Primary, secondary or higher (persons aged 25 to 64)
Germany Primary 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 15.4 15.9 13.9 13.5 15.3 18.0 20.4 20.2 19.9 18.0 16.5 Secondary 10.3 8.8 8.1 8.2 9.0 10.2 11.2 11.0 9.9 8.3 7.2 Higher 5.5 5.0 4.2 4.2 4.5 5.2 5.6 5.5 4.8 3.8 3.3 Primary 14.9 15.3 13.9 11.9 11.8 10.4 10.7 11.1 11.0 10.2 9.8 France Secondary 9.6 9.2 7.9 6.9 6.8 6.6 6.7 6.6 6.6 6.0 5.6 Higher 6.6 6.1 5.1 4.8 5.2 5.3 5.7 5.4 5.1 4.9 4 Primary 10.8 10.6 10.0 9.2 9.0 8.8 8.2 7.8 6.9 6.3 7.4 Italy Secondary 8.1 7.9 7.2 6.6 6.4 6.1 5.4 5.2 4.6 4.1 4.6 Higher 6.9 6.9 5.9 5.3 5.3 5.3 5.3 5.7 4.8 4.2 4.3

Spain Primary 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 17.0 14.7 13.7 10.2 11.2 11.3 11 9.3 9.0 9.0 13.2 Secondary 15.3 12.9 10.9 8.4 9.4 9.5 9.4 7.3 6.9 6.8 9.3 Higher 13.1 11.1 9.5 6.9 7.7 7.7 7.3 6.1 5.5 4.8 5.8 Primary 4.4 4.0 3.6 3.6 4.4 5.7 6.4 7.5 7.6 8.0 7.6

Portugal Secondary 5.1 4.5 3.5 3.3 4.4 5.3 5.6 6.7 7.1 6.8 6.6 Higher 2.8 3.1 2.7 2.8 3.9 4.9 4.4 5.4 5.4 6.6 5.8 Primary 7.7 8.8 8.2 8.2 7.8 7.2 8.7 8.3 7.2 7.0 6.8

Greece Secondary 10.7 11.5 11.2 10.4 10.5 10.1 10 9.6 8.9 8.2 7.2 Higher 6.8 8.0 7.5 7.2 6.8 6.5 7.4 7.1 6.3 6.1 5.7

Source: OECD, 2010 Employment Outlook, p. 118-119

Conclusion: Angela Merkel does not pinpoint the real problems of the Southern euro-zone countries

Germans work far less (over one year, over their lifetime) than wage earners in the "Southern" euro-zone countries (France, Italy, Spain, Portugal and Greece). They do not work more intensely either.

Germany's better economic performance is explained: by the innovation drive; by the higher household and corporate savings rate; by the better skills of the labour force, but only relative to Portugal and Italy.

Flash 2011 401 - 9

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Natixis is authorised by the ACP in France and subject to limited regulation by the Financial Services Authority in the United Kingdom. Details on the extent of our regulation by the Financial Services Authority are available from us on request. Natixis is authorised by the ACP and regulated by the BaFin (Bundesanstalt fr Finanzdienstleistungsaufsicht) for the conduct of its business in Germany. The transfer / distribution of this document in Germany is done by / under the responsibility of NATIXIS Zweigniederlassung Deutschland. Natixis is authorised by the ACP and regulated by Bank of Spain and the CNMV for the conduct of its business in Spain. Natixis is authorised by the ACP and regulated by Bank of Italy and the CONSOB (Commissione Nazionale per le Societ e la Borsa) for the conduct of its business in Italy. This research report is solely available for distribution in the United States to major U.S. institutional investors as defined by SEC Rule 15(a)(6). This research report has been prepared and reviewed by research economists employed by Natixis (Paris). These economists are not registered or qualified as research economists with the NYSE and/or the NASD, and are not subject to the rules of the FINRA

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