Unemployment: As Russia Rises, Germany Sinks?

Would moving East to Russia deliver Germany’s workers from unemployment?

February 6, 2002

Would moving East to Russia deliver Germany's workers from unemployment?

Not exactly. Nearly 12 years after German reunification, Germany and Russia are converging — in a fairly unexpected manner.

After it lost its sprawling empire in Eastern Europe, Central Asia and elsewhere, Russia promptly plunged into a severe financial crisis. Between 1991 and 1996, the Russian economy contracted by as much as 50%. Or maybe more. Nobody knows the real extent of the decline.

The reason is that, under communism, the Soviet Union’s economic figures were actually inflated. In sharp contrast, under capitalism, Russia’s output numbers were distorted downward — in order to hide profits from the taxman. But one thing is clear, only in 2000-2001 did the Russian economy finally hit its stride — and began expanding once more.

In its own way, Germany also has been going through tough economic times. Initially, absorbing the former German Democratic Republic seemed like a fairly easy task. West Germany, after all, was nearly five times bigger in terms of population — and incomparably superior in terms of material wealth.

Yet, after reunification, the pan-German economy never really recovered. The burden of transferring $80-100 billion every year — or 4-5% of its annual GDP — to eastern Germany has proved too much for the western part. And, to add insult to injury, the money so lavishly spent in the east has not created conditions for an economic upturn there.

Now, thanks to the downturn in the global economy, German unemployment has risen once again, after reaching a low of 6.6.% in 1991. By the end of 2001, it had reached 9.6%. Sure, most of the problem is still concentrated in the eastern part of the country, where the chronically high jobless rate stood at 17.6% at the end of 2001. In the rich western part of the country, meanwhile, it was “only” 7.7%.

But the real wake-up call for Germany’s unemployed comes from much further east — Russia. According to just-released Russian government statistics, the unemployment rate there has fallen to 8.5%. That is higher than in western Germany, but lower than all of Germany combined.

Still, the convergence may not be quite so drastic yet. The Russian government claims an 8.5% unemployment rate. But an independent polling agency found evidence that the real rate might be considerably higher. In a recent poll taken by Russia’s ROMIR group, only half of Russia’s able-bodied workforce claimed to have permanent jobs. A full third (36%) told pollsters they were unemployed.

Go west, unemployed

Moreover, you’re still better off being out of work in Germany than holding a full-time job in Russia. The average wage in Russia is only around $80 per month.

In Germany, on the other hand, jobless benefits amount to the average weekly earnings over the previous 52 weeks with a ceiling of $4,000 per month in the West — and $3,500 in the five eastern states. But this may be the reason why the two jobless rates have converged this way — Germany’s on the way up, and Russia’s on the way down.

February 6, 2002