The term German model is most often used in

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

to describe post-

World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...

West Germany West Germany was the common English name for the Federal Republic of Germany (FRG) from its formation on 23 May 1949 until German reunification, its reunification with East Germany on 3 October 1990. It is sometimes known as the Bonn Republi ...

's means of using (according to

University College London University College London (Trade name, branded as UCL) is a Public university, public research university in London, England. It is a Member institutions of the University of London, member institution of the Federal university, federal Uni ...

Professor Wendy Carlin) innovative industrial relations, vocational training, and closer relationships between the financial and industrial sectors to cultivate economic prosperity. The two key components of the German model is a national system for certifying industrial and artisan skills, as well as full union participation in the oversight of plant-based vocation training. The German model of collective bargaining differs from the model common in other European countries and the United States. In Germany, unions and employer associations bargain at the industry-region level. In contrast to tripartite corporatist systems, the German government is not involved in the negotiations. These large-scale agreements have broad coverage and lead to considerable standardization in wages and employment conditions across the country. Some bargaining occurs at the firm level.

History

In 1869, legislation liberalized apprenticeship training, removing restrictions on who could take on apprentices. In 1881, 1884 and 1887, legislation tightened the restrictions. A law passed in 1897, the Handicraft Protection Law, stabilized a plant-based apprenticeship system in German industry. The law set limits on the number of apprentices a firm could take on and introduced a monitoring system for the quality of training. According to

Kathleen Thelen Kathleen Thelen is an American political scientist specializing in comparative politics. She is the Ford Professor of Political Science at the Massachusetts Institute of Technology (MIT), a permanent external member of the Max Planck Institute f ...

, this law played an essential role in cementing what would become the German model. The 1897 law was the result of bargaining between the state and the artisanal sector, which had a supportive relationship. Organized labor had a minimal impact on the legislation and the social democrats opposed the legislation due to suspicion of the traditional artisanal sector. Thelen writes that the impetus for the legislation was "deeply political and mostly illiberal." Over time, the social democrats were incentivized not to dismantle the system established by the law, as labor unions became increasingly filled with skilled workers trained under the apprenticeship system. In the Weimar Republic, German unions had become advocates of the in-plant training system. Gradual changes were made to the vocational training system in the 20th century.

Industrial relations

Under the German model, unions are organized at the industry level and co-exist with

works council A works council is a shop-floor organization representing workers that functions as a local/firm-level complement to trade unions but is independent of these at least in some countries. Works councils exist with different names in a variety of re ...

s at both the plant and company levels. These unions negotiate wage determination with employers' associations. The strength of this setup is the cooperation among unions and management councils. This is unique among Western countries, which have been marked by either substantial weakening of union powers (such as in the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

and

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

since the 1980s), or consistent union conflict (such as in

France France, officially the French Republic, is a country located primarily in Western Europe. Overseas France, Its overseas regions and territories include French Guiana in South America, Saint Pierre and Miquelon in the Atlantic Ocean#North Atlan ...

and

Italy Italy, officially the Italian Republic, is a country in Southern Europe, Southern and Western Europe, Western Europe. It consists of Italian Peninsula, a peninsula that extends into the Mediterranean Sea, with the Alps on its northern land b ...

, where unions have remained strong).

Consensus model

As in relations between unions and employers, the German model also seeks to harmonize relations between regulatory bodies and affected parties, as well as between individual companies to prevent ruinous competition within the scope of applicable antitrust law. Considered an outgrowth of the non-confrontational culture of postwar Germany, finding a common denominator was often the main goal in such relationships.

Vocational education and training

The system of

vocational education Vocational education is education that prepares people for a skilled craft. Vocational education can also be seen as that type of education given to an individual to prepare that individual to be gainfully employed or self employed with req ...

is perhaps the most important component of the German model, and is still very prevalent in the German educational system. In Germany, there is a much heavier emphasis on

apprenticeship Apprenticeship is a system for training a potential new practitioners of a trade or profession with on-the-job training and often some accompanying study. Apprenticeships may also enable practitioners to gain a license to practice in a regulat ...

s for skilled positions, taught by expert worker-instructors. It has been made possible through long-term politics, focusing on establishing stronger links between the dual vocational education and training system and institutes of higher education, on improving integration into vocational training through basic skills and permeability and on establishing national coverage of branch-specific regional initial and continuing training centres. As such, there is a lower percentage of university students in Germany when compared to other Western countries, and a much lower percentage of persons entering the workforce for on-the-job training. Vocational training is required for a large number of occupations. At the end of vocational training, a highly regarded certification qualification is awarded that is valid for a range of over 400 occupations. This is in stark difference to other European countries, where the number of controlled occupations is much smaller. Critics cite inflexibility of the school system as the main disadvantage. Some 60% of graduates change their profession within 10 years of graduation.

Financial and industrial relations

German

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

s have a much larger role in shaping the industrial sector than those in other Western countries. Rather than simply collecting savings and investments and issuing loans, most German banks have large interests in the commercial sector. As such, many corporate boards offer seats to high-ranking German banking officials, whose banks are often investors in the corporation. As a result, they seek to promote long-term

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

in the overall health of the companies they are working with.

Future of the German model

Since

German reunification German reunification () was the process of re-establishing Germany as a single sovereign state, which began on 9 November 1989 and culminated on 3 October 1990 with the dissolution of the East Germany, German Democratic Republic and the int ...

German prosperity has declined compared to pre-unification West German levels, and the German unemployment rate reached record levels: 12.6% (according to national definition) as of March 2, 2005, the highest rate since World War II. The failure of the German model to maintain standards of high performance has led experts to speculate about its demise, despite having been adopted successfully in other countries' corporations since its peak. Others see the relative decline as an unavoidable consequence of integrating the much less advanced GDR economy and 17 million new citizens, which necessitated a transfer of over 1.3 trillion Euros from west to east as of 2009. Much of the political discourse regarding reforms in recent years revolved around the question of how to modify the German model (and the political conditions forming its framework) to sustain it in a globalised economy. Ex-Chancellor

Gerhard Schröder Gerhard Fritz Kurt Schröder (; born 7 April 1944) is a German former politician and Lobbying, lobbyist who served as Chancellor of Germany from 1998 to 2005. From 1999 to 2004, he was also the Leader of the Social Democratic Party of Germany (S ...

's reforms, called " Agenda 2010", made some steps towards such a goal, but also brought with them much controversy. Nonetheless, after years of 'painful' reforms, the German economy seems to have got back on track. The wage share, however, measured as compensation of employees as percentage of

gross national income The gross national income (GNI), previously known as gross national product (GNP), is the total amount of factor incomes earned by the residents of a country. It is equal to gross domestic product (GDP), plus factor incomes received from ...

, was declining in Germany since the 1980s. GNIdistributionFRG

Unemployment has fallen below 10% (according to national definition) for the first time in years and economic growth reached 2.7% in 2006. In June 2016, the unemployment rate was reported as 5.9% by the German Federal Employment Agency ( Bundesagentur für Arbeit). Whether this is an ongoing development is however a matter of continuing debate, as are further reforms.

Counter-argument: Rise of the German model

As of 2009 and the recent worldwide economic downturn, some analysts have speculated that the German model of social capitalism is resurgent and is the most responsible economic system that still ensures the survival of the

free market In economics, a free market is an economic market (economics), system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of ...

. With recent economic schemes and company abuses, such as in the

Bernard Madoff Bernard Lawrence Madoff ( ; April 29, 1938April 14, 2021) was an American financial criminal and financier who was the admitted mastermind of the largest known Ponzi scheme in history, worth an estimated $65 billion. He was at one time ...

scandal, the

Enron scandal The Enron scandal was an accounting scandal sparked by American energy company Enron, Enron Corporation filing for bankruptcy after news of widespread internal fraud became public in October 2001, which led to the dissolution of its accounting ...

, and the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

, the German model of a rigidly structured and regulated economy has become more attractive. From 2003 to 2008, Germany (a nation with only 80 million inhabitants) was the world's biggest exporter. In 2009, China (1.3 billion inhabitants) overtook Germany in exports. One of the reasons for this are the Hidden Champions as a result of the German Model. Germany's Hartz Reforms and a growing low-wage sector are believed to have weakened the core setup of this German Model.