The Financial Times on Germany 10

The Financial Times on Germany 7

German job vacancies rise sharply

By Bertrand Benoit in Berlin and John Thornhill in Paris

Published: June 27 2007 22:58 | Last updated: June 27 2007 22:58

The tightness of Germany’s employment market has been highlighted in a report from the Federal Labour Agency showing a sharp rise in job vacancies.

Vacancies rose to a seasonally adjusted 737,000 in June, more than twice the average number for 2004, when the agency began recording the data.

Actual vacancies are even higher since the agency only records about 60 per cent of the total figure. Officials said the average time required to fill vacancies was also rising and had now reached more than two months, against 50 days on average last year.

Unemployment in Germany, although still relatively high by western standards at 6.6 per cent, has plunged by almost 1m in the past year as the eurozone’s biggest economy has expanded relatively strongly. Many German companies – particularly in engineering, manufacturing and financial services – are now reporting workforce shortages, which economists fear may eventually result in wage increases, possibly fuelling inflation.

The current shortage of workers and Germany’s rapid demographic decline compared with other European economies have sparked a political debate about whether and how to encourage the immigration of highly qualified foreign professionals.

The jobs market in France, the second biggest eurozone economy, has also picked up in recent months but the government still needs to do more to stimulate job creation, according to a country report published yesterday by the Organisation for Economic Co-operation and Development. The OECD recommended that the government simplify the labour code, overhaul employment protection legislation, encourage older workers to remain in paid employment, and explore the creation of a single labour contract.

Controversially, it also recommended that France should stop raising its minimum wage too fast to combat poverty and should instead target tax credits at the poorest families. The Paris-based economic organisation said that setting the minimum wage (known as the Smic) too high only led to wage compression and prevented poor workers from moving up the income scale.

According to the OECD, the Smic has come to be regarded as the wage norm in France rather than a starting wage. Almost 17 per cent of French workers received the minimum monthly wage of €1,254 ($1,688, £845) in 2005, according to Eurostat. By contrast just 2 per cent of British workers were on the minimum wage set at €1,361.

The minimum wage became the subject of furious argument during the recent presidential election campaign.

President Nicolas Sarkozy already appears to have accepted the main thrust of the OECD’s argument about labour market reform to combat the scandal of the “working poor”. But the opposition Socialist party still sees the minimum wage as an effective means of promoting social justice.