German Unemployment Up; Spain's Comes Down

The unemployment rate in Germany rose to 10.8% in November, the highest in almost six years, since December 1998. The number of people unemployed rose 7,000 in the month, an increase of 2.2% from November a year ago. At the same time, Germany is in the anomalous position that both unemployment and employment are rising. While the number employed dipped 1,000 in September (latest available, also published today), this was the sixth month in which that figure was higher than a year ago, marking a turn from 29 consecutive months of year-on-year declines. At 0.3%, the current gain is obviously not large, but clearly the stabilization is welcome.

In Spain, the labor market is much more vigorous. The unemployment rate there, 10.5% in the third quarter, is nearly as high as in Germany, but it has come down markedly, and the number unemployed for November (which was reported today) is 1.0% lower than the year-earlier level. Jobs are growing, with third quarter employment up 2.5% from a year ago.

It is widely argued that German regulations keep labor costs so high that companies are encouraged to move operations elsewhere. This may be the case, but it's not evident in German labor cost data. Over the last year, hourly compensation per worker in Germany has been virtually flat and labor cost per unit of GDP has actually declined 1.3%. In contrast, these costs are rising in Spain. Thus, labor mobility -- perhaps described better as business operations mobility -- in Europe may be pushing labor costs toward convergence as conditions ease in the high-cost country but firm in the low-cost region.