German industry battles high labor costs
According to a study from the German Economic Institute, labor costs in German industry are high. Although productivity is above average, this does not fully compensate for the extra cost.7 Apr 2020 David Schahinian
Unit wage costs in the German manufacturing sector in 2018 were 15% higher than in 27 other countries analyzed in the study, according to the Economic Institute. Compared to the eurozone, Germany had a cost disadvantage of 9%. According to the study , the only countries with more cost-intensive production are Norway, Croatia, the UK, France and Estonia. In the USA and Japan, production is substantially cheaper than in Germany. Germany’s higher productivity does not balance out the higher labor costs. In addition, productivity decreased 4% in the previous year, leading to a unit wage cost increase of 6%. The results are alarming, according to Christoph Schröder, author of the study: “It will become more and more difficult for German companies to compete internationally.”
Then there is the coronavirus crisis, which was not taken into consideration in the study, but which will affect global industry. Its effects cannot be known yet, but before it happened, businesses had some grounds for optimism. Destatis , the German Federal Statistical Office, reported that industrial businesses enjoyed an increase in incoming orders of 5.5% in January 2020 compared to the previous month. The main beneficiaries were mechanical engineering and aircraft and spacecraft manufacturing.
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