Germany: boosting unions reduces unemployment

Sy Slavin, Ph.D., Kentucky Labor Institute Director, Union Review:

Germany, with a 6% unemployment rate, relatively low by economic measures both in Europe and USA, has found that strengthening unions is an important way for reducing unemployment. It is also an important policy for reducing economic inequality.

The New York Times on June 8, reporting on the German economy, stated, “Germany, with its 6% unemployment rate against the US 14 % unemployment rate,” enacted policies based on strengthening and building unions as a way of increasing consumer spending through higher wages paid to union workers. Thus this policy reduces unemployment by increasing workers' purchasing power. In addition, German policies encouraging union building and negotiation power found that it was able to reduce economic inequality. Proof of this is the fact that the top 1% of German households earns 11% of all income, virtually unchanged since 1970. However, in the US the top 1% makes more than 20% of all income, up from 9% in 1970. It should be noted that Germany has the tightest market regulation of banks in Europe.

Germany does not have a smaller deficit than the US because it spends less; it has a smaller deficit because its tax policies take a heavier toll from huge corporations. Thus, this reduces the total amount of governmental deficits that it carries. Unlike the US, the German government believes that fairness demands that its huge corporations pay a heavier share of taxes which increases their general government revenue stream. It is the obverse of US tax policies as illustrated by the Bush tax cuts.

US corporations are awash in the largest amount of cash ever recorded in US history, and these corporations aided by their Republican allies and advocates still refuse to pay their fair share of taxes. If corporate taxes were increased our deficits would melt faster.

Thus, keeping unions strong reduces unemployment, because higher wages which unions secure, increase purchasing power and in turn accelerate the need for more workers in manufacturing and service jobs. Busting unions increases unemployment and precipitates recessions. Emulating Germany’s economic policy is a sound way to go.