Employment: Increasing number of persons in employment not only attributable to economic growth

^{Destatis, 02 January 2008}

According to calculations of the Federal Statistical Office, the number of persons in employment amounted to 40.36 million in Germany in October 2007. That was an increase of 587,000 persons from the highest figure recorded during the previous period of economic upswing in November 2000. Never before more persons had been in employment in Germany than in October 2007. The most recent economic forecasts of several economic research institutes anticipate a further increase in the number of persons in employment by about 0.8%, with the real growth rate of the gross domestic product being estimated at 2.2% for 2008.

Looking back into the past

While reliable forecasts regarding the trends in employment can only be made for a short period of time, retrospective analyses can be prepared for periods of several decades. It is just against the background of the current economic boom that retrospective analyses can help better understand the present development. In the context of the latest revision of national accounts, the Federal Statistical Office recalculated the employment figures back to 1970 recently. As a result, comparable time series are now available to reflect the development of employment in the former territory of the Federal Republic from 1970 to 1991 and in reunited Germany from 1991 until today.

Persons in employment

The number of persons in employment has increased considerably between 1970 and today. Against the background of this basic tendency, cyclical ups and downs have been observed in the employment figures. The trends observed in both the cyclical development and the basic tendency have been similar to the development of the gross domestic product.

Trends in the former territory of the Federal Republic until 1991...

Three phases of increasing employment were observed in the former territory of the Federal Republic. In the first phase which ended in 1973, the number of persons in employment amounted to 27.18 million. It was followed by a period (until 1976) during which the employment figure declined by about one million. The next phase characterised by increasing employment was observed in 1980/81. Amounting to 27.45 million, the number of persons in employment was slightly above the number recorded in 1973. Following a period of downturn (until 1983), employment continued to increase until 1991. Not later than in 1985, the previous all-time high was exceeded, and in 1991, not less than 31.26 million persons were in employment in the former territory of the Federal Republic.

...and in reunited Germany until today

The first phase of employment in reunited Germany was characterised by a remarkable decline. In 1991, a total of 38.62 million persons were in employment in the country’s territory as a whole. Over the following two years, employment declined by more than one million to 37.56 million and remained more or less unchanged until 1997. However, the gross domestic product saw a continuous and real increase over that period (with the exception of 1993). The next period of increasing employment figures started not earlier than in 1998. The number of persons in employment reached the next all-time high in 2001 (39.32 million persons on an annual average). After a slight decrease ( 600,000 persons) during the following two years, employment again started to rise, through rather modestly. In 2006, the annual average amounted to 39.09 million persons in employment.

The employment trends over the past 37 years have shown that conclusions cannot be drawn as regards typical “employment cycles”. Both the duration and the type of employment trends have differed considerably in the individual cycles. A more thorough comparison with the development of the gross domestic product reveals that the trends have shown similarities, though economic growth has not necessarily corresponded with job creation. As an example, the 1993-1997 phase should be mentioned which was characterised by economic growth that did however not result in increasing employment.

Is economic growth important to raise employment?

Relative year-on-year change

Economists are of the opinion that the real growth of the gross domestic product must reach a certain level before it will trigger a rise in employment. In the past few years, the employment threshold - as this level is called - has been an economy’s growth of about 1.5%. In previous decades, however, the relevant level was set at a minimum of 2%. That approach seems to be sound in view of the trends observed during the previous decades. In all above periods characterised by increasing employment, real economic growth amounted to at least 2%, too.

As a matter of fact, the increase in the number of persons in employment may start with a delay of up to one year or exceed the phase of gross domestic product growth. And remarkable economic growth in a single year will not generate a corresponding increase in employment.

As regards the number of persons in employment, it has to be borne in mind that the relevant calculations refer to persons, while the volume of work is not considered. Assuming that a certain volume of work has to be accomplished in Germany, the number of persons in employment would have to rise if the number of persons working part-time increased or the working hours were reduced.

Table: Hours worked in the domestic territory

Declining number of hours worked

According to the results of the working time accounts of the Institute for Employment Research (IAB), the total number of hours worked in Germany as a whole amounted to 56 billion in 2006. Generally, the number of hours worked has tended to fall over the past four decades. During periods of favourable economic development, however, this tendency has slowed down or partly even been reversed. In 1991, the number of hours worked still amounted to 59.79 billion. Between 1970 and 1991, the volume of hours worked in the former territory of the Federal Republic declined from 52.29 billion to 48.73 billion.

The above decline reflects the following two trends:
On the one hand, the volume of work required to achieve an ever increasing economic performance has continuously decreased over the past few decades. Hence labour productivity has grown. On the other hand, the number of persons in employment has continuously increased in Germany. The number of hours worked per person in employment and year can serve as an explanation: It has seen a continuous decline which has been largely independent from the relevant economic trend. While in 1970, a person in employment in the former territory of the Federal Republic worked an average 1,966 hours per year, the relevant number amounted to not more than 1,559 hours in 1991.
This development has been largely due to the increasing number of women in employment and the resulting high proportion of part-time work. German reunification did hardly change the average number of hours worked. The number continued to decline and has remained more or less stable since 2003. In 2006, a person in employment worked an average 1,436 hours.

Please also refer to the articles on
Labour force participation in Germany and in Europe
Areas of employment of men and women

Author:
Christian Wingerter – Federal Statistical Office

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