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The Germans Have A Model The United States Could Use To Revive Manufacturing And Its Middle Class, By Marko Slusarczuk
By Marko Slusarczuk
During the 20th century, millions of immigrants chose to live in major industrial cities like Detroit, Chicago and Pittsburgh because of their vibrant ethnic communities and the availability of jobs. These immigrants worked long hours on "the line" at highly repetitive, unskilled jobs that required only a marginal knowledge of English. The union-negotiated pay was excellent; the defined benefit plans provided for a comfortable retirement. On the foundation of these workers, the United States created a large, upwardly mobile middle class.
Today, most of these jobs have moved offshore or do not have nearly as generous pay packages. Employers have cut benefits and underfunded or eliminated pensions. Union membership has declined. Most economists agree that the days of high-paying, unskilled jobs in the United States are over -- these jobs have gone overseas and are not coming back. With them, the backbone of the U.S. economy -- the middle class -- has declined and weakened. The disparity between the highly paid workers and those at the lower levels has widened significantly.
For years, U.S. policymakers have struggled to come up with a substitute for the lost manufacturing jobs and with it, the basis for a resurgence of the middle class. Many have looked to the rise of China as the model of a global manufacturing superpower. They have tried to find ways to clone the China model in the United States with little success. Low-paying jobs and direct government subsidies do not fit into the U.S. business and policy model.
Others have focused on innovation. Although Americans are prolific recipients of patents, second only to Japan, the United States only ranks eighth in the world in terms of innovation leadership.
Germany, on the other hand, provides an interesting contrast. The average direct wage that German manufacturing workers earn is $26.90 per hour while those in the United States earn $23.03, and in China only $1.37. Social insurance costs are $10.37 per hour in Germany and $7.90 in the United States. Directly paid benefits are $9.24 in Germany and $2.60 in the United States, for a total compensation cost of $46.52 in Germany and $33.53 in the United States. German workers are legally entitled to 34 days of paid annual leave, while U.S. workers are not legally entitled to any paid leave, and average only 18 vacation days per year. German companies must offer 14 weeks of fully-paid maternity leave, which increases to 18 weeks in the case of multiple births; U.S. companies do not have to provide any paid maternity leave. U.S. workers are the second most productive in the world, while those in Germany are 23rd.
Germany has the world's oldest comprehensive health care system, which Chancellor Otto von Bismarck established in 1883. The United States is just taking the first steps towards a comprehensive health care system. German corporate taxes average 29.4 percent, while those in the U.S. average 25.6 percent and in China 16.8 percent.
Unionized workers comprise 26 percent of the German labor force and unions have a strong voice with a legally-mandated presence on corporate boards. U.S. union worker representation has fallen to 12.3 percent of the workforce and the influence of unions is declining. It is difficult to terminate German workers, with Germany ranking at the bottom, 133 out of 139, in global hiring and firing practices. The United States, on the other hand, ranks near the top, in sixth place. Germany has some of the strictest environmental regulations in the world, and has ratified the Kyoto Protocol. The United States and China have not subscribed to the Kyoto Protocol, and China has been following a "produce now, clean up later" strategy, rarely penalizing environmental infractions. Based on these data, virtually any economic analysis would conclude that Germany could not possibly be a strong global competitor.
Germany, however, is the second largest exporter in the world in terms of value, and the largest on a per capita basis, while the United States is third. In 2010, Germany had a trade surplus of $184 billion, while the United States had a trade deficit of $470 billion. German exports are highly sophisticated, precision products, while those from China target the low-cost mass markets, where price is the driving differentiator. Germany's unemployment rate in 2010 was 7.2 percent, while the United States was 9.6 percent. Germany has managed to maintain such leadership in spite of having to spend almost $2 trillion since October 1990 on costs associated with Wiedervereinigung, or the process of reunification.
In spite of high labor costs, generous benefits, government mandated health care, stringent environmental regulations and relatively high corporate taxes, German companies have maintained global leadership across broad industrial sectors: luxury automobiles (Porsche, Daimler, BMW and Audi); mid-range automobiles (Volkswagen); steel (ThyssenKrupp); high-power lasers (Trumpf); semiconductors (Infineon Technologies); medical equipment (Siemens); lighting (Osram); chemicals (BASF); materials (Bayer Group); optics (Carl Zeiss), glass (Schott); automobile components (Bosch); cameras (Leica); pharmaceuticals (Merck); athletic wear (Adidas, Puma); computer software (SAP) . . . .
One reason for Germany's success is their primary and secondary education system. Germans divide students into two separate tracks as early as fourth grade. One group of students follows an academic track, while the other moves into Berufsfachschulen to pursue vocational programs. About two-thirds of German students follow the vocational track, and only one-quarter goes on to college. Germans respect and value both groups. There is no social stigma associated with bypassing college; vocational students undertake a rigorous apprenticeship program and receive a diploma, the Meisterbrief.
In the United States, on the other hand, most secondary schools and parents focus on getting their children into college. Over 70 percent of high-school graduates go on to college, and the number is increasing. Society, on the other hand, disparages and considers vocational training inferior. Students that would rather pursue life in the "trades" see little relevance in what they learn in high school and often drop out. The United States ranks 20th out of 30 industrialized nations in terms of high school graduation with a graduation rate of only 77.5 percent, while Germany ranks first with a rate of 99.5 percent. The No Child Left Behind Act does little to promote vocational education and in fact, vocational educators see it as a detriment.
Although 93 percent of comprehensive high schools, most community colleges, some four-year colleges and a number of for-profit training schools offer some vocational courses, less than 20 percent of American students choose to follow a vocational career. The U.S. Department of Labor's Office of Apprenticeships coordinates and sets guidance standards for much of the apprenticeship activity in the United States. Individuals can join apprenticeship programs as early as age 16, but most programs require apprentices to be at least 18 years old. By that time, however, many students have become frustrated and bored with the educational system and have dropped out.
Most U.S. manufacturing job growth is in the nimble small businesses that feed into the larger systems houses. These small businesses need highly skilled workers, but cannot afford the resources necessary to support in-house apprenticeship programs. Furthermore, once trained, apprentices become highly mobile and can easily move on to a competitor. Many manufacturing entities want to hire workers, but there is a shortage of workers with the requisite skills, despite the high level of unemployment. These skills do not require a college degree, but rather an extensive array of skills.
Aspects of the German multi-track educational model, with a focus on apprenticeship, may serve the United States well. With the influx of highly skilled workers, the manufacturing sector can recover. Although the American Recovery and Reinvestment Act of 2009 provided competitive grants for green job training, a much broader effort, targeting students at a much younger age is necessary.
Job training is often the provenance of trade schools. There is a vast difference between the economic drivers of trade schools and that of apprenticeship programs. Most trade schools are for-profit and their primary duty is to the shareholders. The trades and companies, on the other hand, run apprenticeship programs, and their interest lies in developing the most qualified workers for the trade or employer. Apprenticeship program drivers, therefore, more closely align with student and community interests.
A government-led policy implementation can start to produce highly skilled apprentices in as little as two years, yielding measurable results. A focus on giving students the option of pursuing an apprenticeship track that commences early in the education process will benefit students and a wide range of industries, lead to high-paying jobs and can help revive the faltering middle class.
-- Marko Slusarczuk is an analyst at the Institute for Defense Analyses, mslusarc@ida.org
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