High Productivity Does Not Outweigh High Labor Costs

In 2006, Germany’s productivity per hour was 16 percent above the average of the other 15 countries surveyed. This advantage is not large enough, however, to offset Germany’s high labor costs.

Only the United Kingdom had significantly higher unit labor costs while important competitors like Japan and Canada had cost advantages of up to 27 percent. Over the entire period from 1991 to 2006, foreign competitors’ unit labor costs retained the same level in national currency. In Germany, however, the decrease of 11 percent since 1996 did not fully compensate the 16 percent increase in the first half of the 1990s which grossly overstretched the distribution margin. Yet from 2003 to 2006 Germany has improved its cost competitiveness considerably with unit labor costs decreasing by 8 percent.