Press Releases

Current and older Press Releases of DIW Berlin
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23 July 2014

Migration in the European Union

The mobility of the labor force within the European Union - measured as the proportion of EU foreigners in EU-15 countries to the total EU labor force - increased by approximately one-quarter to almost 3.1 percent from 2007 to 2012. This is primarily due to increased migration of persons from the new eastern European EU member states such as Poland and Romania and, to a lesser degree, due to increased migration of persons from the countries in southern Europe most affected by the crisis. In2012, around 7.4 million economically active persons from the EU-27 were living in an EU-15 country outside their home country. Germany, in particular, has recently seen a substantially increased influx of foreign nationals from EU member states, resulting in an increase in annual total net migration of EU-27 nationals to Germany to more than 260,000 people as of 2012. Our empirical analysis shows that the level of migration to Germany is linked to both unemployment and the gross domestic product per capita in the countries of origin, and to the degree of free movement of workers. The overall picture reveals that the mobility response to the gap in EU unemployment rates in the wake of the crisis was low. This suggests that recent migratory movements could reduce regional (labor market) imbalances to only a limitedextent. The income differences between eastern and western European EU countries appear to have had a greater impact on recent migratory movements than the crisis. If these differences are not significantly reduced in the short term and if recent labor market imbalances within the EU continue for some time to come, annual net migration of EU foreigners to Germany is expected to remain high in the near future.

16 July 2014

Better Competition Policy Significantly Improves Productivity Growth

Economists have long discussed the correlation between the quality of competition policies and a country's productivity growth. It is, however, very difficult to prove this connection, to determine its extent or to quantify it. Commissioned by the European Commission, a team of international researchers, led by DIW competition expert Tomaso Duso, has developed the first evaluation system to assess the effectiveness of competition policy, enabling economists to make observations regarding the impact of changes in competition policy on productivity growth. The study shows that a one-percent improvement in competition policy, based on the indicators used here, is responsible for an average increase in Total Factor Productivity (TFP) of 4.5 percent.

9 July 2014

Federal Fiscal Equalization System Before Reform: An Inventory

One of the key tasks of this legislative period is to restructure the federal fiscal equalization system by 2020. There is a lot of money involved: in 2013, nearly 14 percent of ultimate tax revenue from the Länder was redistributed. The existing system has developed over time, is highly complex and convoluted. Thus, there is a high demand for modifications and fundamental adjustments would be desirable. However, it is likely that political agreement will only be reached on partial changes to the existing system. Ultimately, negotiations are likely to be dominated by the issue who gets or pays how much. Obviously the volume of fiscal transfers is essentially driven by the high degree of equalization concerning the fiscal power of the Länder. But there are also other drivers that are of high relevance. It is not yet finally decided which tax revenue should be included or how the number of inhabitants should be taken into account. Finally, supplementary grants will be a task under consideration. In general, any intervention to the system will leave winners and losers behind. Thus, in this report, exemplary changes to the system will be evaluated and quantified. In view of the political process the current uneven distribution of profits and losses among the Länder is a challenge. While Bavaria can expect high gains, Berlin, the two other city-states and the new Länder will lose out. High concentration of gains and losses among individual Länder is from a political point of view difficult to accept. If no fundamental reform can be worked out, though some form of modification is regarded necessary, the Bund will have to decide on the degree of his engagement. This is not a good solution, rather adjustments regarding the distribution of tax revenue should be considered.

3 July 2014

Growing Out of the Crisis: DIW Berlin Proposes European Investment Fund

An investment fund should temporarily improve the capital stock of small and medium-sized enterprises as part of a comprehensive agenda - In the euro area, there is an annual investment gap of approximately two percent of GDP or 180 billion euros - Many sectors both in the manufacturing and service industries are showing signs of a significant lack of investment, especially the energy sector

The German Institute for Economic Research (DIW Berlin) is proposing a comprehensive investment agenda to tackle the European crisis. The core elements of this agenda should be a temporary investment fund, in particular for small and medium-sized enterprises, improved competition policies, investment-friendly tax policies, and the promotion of cross-border joint ventures. “Structural reforms alone are not sufficient to break the vicious circle of banking, debt, confidence and growth crises,” say a team of researchers led by the President of DIW Berlin, Marcel Fratzscher. According to the team, “Europe has a growth problem that can only be overcome through investment. What we need is not more government intervention but significantly more growth impetus for the private sector, more market, more innovation and more competition.”

25 June 2014

Coal Power Endangers Climate Targets: Calls for Urgent Action

Coal-fired power stations are responsible for around a third of Germany's carbon emissions. Failure to reduce the persistently high level of coal-fired power generation threatens Germany's climate targets for 2020 and 2050 and undermines a sustainable energy transition. Calculations by DIW Berlin and other expert opinions prove that, in the long term, lignite, in particular, is no longer relevant for the German energy system. However, if there is no significant increase in the price of CO2 emission certificates in the near future, a market-driven transition from coal to less CO2-intensive energy sources, such as natural gas, is unlikely to occur. Presently, a number of options for reducing the level of power generated by coal are being dicussed. Along with the reform of the Emissions Trading System (ETS), proposals also include minimum energy efficiency levels or greater flexibility requirements, national minimum prices for CO2 emission certificates, capacity mechanisms, a residual emissions cap for coal-fired power stations, emissions performance standards, and network development planning that respects the climate targets. The proposals address both existing and planned coal power plants.

17 June 2014

The Upturn Continues

The German economy is expected to grow by 1.8 percent in 2014, keeping that pace in 2015, at a rate of two percent. GDP is expected to grow during the forecast period at rates only slightly above the trend; the slight under-utilization will therefore decrease correspondingly slowly. Inflation remains weak. Global economic growth was weaker at the start of the year. In both the industrialized and emerging countries, rates of expansion have decreased. Monetary policy orientation will remain globally expansive during the forecast period. The restrictive stimuli of financial policy in industrialized countries will diminish. After a weak start to the year, the pace of growth in global economic development should accelerate somewhat. In the short term, catch-up effects in the US will become particularly evident. Later, the gradually improving situation on the labor markets of industrialized countries in conjunction with continued low inflation rates should bolster real earnings. This is likely to stimulate consumption and, as a consequence, corporate investment activity. Overall, the average annual growth rate of the world economy in 2014 and 2015 will reach 3.5 and 3.9 percent respectively. The rate of inflation is likely to be around three percent in this period. In this environment, the German economy will continue its uptrend, albeit only at rates slightly above potential growth, as the industry will expand only moderately. The previously robust growth in the service sector may be further stimulated by a tangible increase in private consumption expenditure. Equipment investment and exports will increase significantly again going forward. There has been a marked increase in the number of employed people and employment should continue to rise noticeably. All in all, unemployment will recede in both 2014 and 2015 to 2.88 million and 2.83 million respectively and the unemployment rate will decline in both years, to 6.6 and 6.5 percent, respectively. The overall public budget will also show a surplus in both years. This year it is likely to be as high as it was last year (0.2 percent in relation to nominal GDP) and next year it will then increase significantly to 0.7 percent.

12 June 2014

Making the Euro Area Fit for the Future

The crisis in the European currency area is not over yet. Although the situation in the financial markets is currently relatively calm, the economic crisis appears to be bottoming out in most countries. Nevertheless, fundamental design flaws in the Monetary Union continue to exist. If these are not fully addressed, it will only be a matter of time before a new crisis hits, and a partial or complete breakup of the monetary union cannot be ruled out. The economic consequences would be devastating, not least for Germany. To ensure the continued existence of the European Monetary Union, fundamental reform is required in three problem areas: the financial markets, public finances, and the real economy. In order to give the monetary union a stable foundation, all problem areas must be tackled equally; otherwise, due to interactions between these fields, success in one area might be wiped out by a flare-up of the crisis elsewhere. The present DIW Wochenbericht outlines the elements of such a strategy for the institutional restructuring of the Monetary Union. It is therefore the prelude to a series whose subsequent parts are concerned with the role of the ECB as the lender of last resort, with the banking union and bank regulation, community bonds, a European investment agenda, with migration within the EU, a European unemployment insurance, options for fiscal devaluation, and the mechanisms for sovereign bankruptcies.

11 June 2014

Intense Excitement until the Final Whistle - FIFA World Cup Winner More Difficult to Predict this Time Around

At the FIFA World Cup 2006, the method of using the market value of the teams ("transfer value") was first proposed as a simple and transparent basis for forecasting the outcome of a major football tournament. Indeed, the countries with players of the highest market value were world champions in 2006 and 2010 (Italy and Spain, respectively), just as the most expensive team won the European Championships in 2008 and 2012 (Spain). The winner of the upcoming World Cup in Brazil can be forecast in the same way, but it is considerably more difficult to predict the result this time around. This is because the top teams are much more evenly matched - in terms of the market value of the whole squad - than in the previous tournaments when the Spanish team was clearly the most expensive one. Consequently, other factors come into play, such as level of fitness, daily form, and chance, as they did in 2006 when the top teams were also very evenly matched.

4 June 2014

Marriage- and Family-Related Payments in Retirement: Important for Economic Stability of Families

Family-related breaks in employment often lead to lower statutory pension entitlements, especially for retired mothers. Against this background, the legislation for marriage- and family-related payments has been designed to compensate for such deficits in old-age provision. These payments are directly related to old-age pensions and can be of relevant importance for the economic stability of families in retirement. This applies in particular to child-rearing periods and, to a limited degree, also to supplementary child allowance for widow's pensions and credited child-raising periods in relation to revaluation and bringing up several children. In contrast, credited child-raising periods have less relevance for the entitlements of those retiring before the default retirement age.

27 May 2014

Unemployment Also Affects Partners

Unemployment affects the mental health of partners almost as much as that of the unemployed person. The impact on mental health does not depend on which partner is unemployed: both women and men suffer from their partner being unemployed. These are the findings of a study conducted by DIW Berlin on the basis of data from the Socio-Economic Panel Study (SOEP) which looked at couples affected by unemployment due to business closures. The findings show that the costs of unemployment for the health system are underestimated if the impact on partners is not considered.

27 May 2014

European Natural Gas Supply Secure Despite Political Crisis

Natural gas makes a major contribution to European energy supply. Consequently, the political crisis between Russia and Ukraine increases fears of the consequences of Russia suspending natural gas supplies to Ukraine and the European Union. The last time this occurred was in the winter of 2009, as Russia and Ukraine disputed the price of natural gas and transit costs. However, the European Union has subsequently increased the security of its gas supply. Measures proposed by the European Commission are becoming more and more successful, particularly the diversification of sources of supply and an accompanying expansion of natural gas infrastructure to secure supply from third-party countries. Opportunities to ease temporary supply bottlenecks have improved significantly within the Community in recent years. Nevertheless, Russia remains a major supplier of natural gas to the EU. The Russian gas corporation Gazprom is gaining importance in Eastern Europe, and increasingly also in Germany. However, this dependency is not a one-way street: Russia generates high export revenues from its natural gas trade. It currently has few alternatives to exporting to the EU. Model calculations by DIW Berlin show that Europe can cope with any supply disruption by Russia via Ukraine. Some Eastern European countries, however, suffer most from a complete supply stop by Russia. To further increase supply security to Europe in the medium term, it will be necessary to continue diversifying gas supplies, especially by making more efficient use of existing infrastructure, and expanding its pipelines and its capacity to import liquefied natural gas. Additionally, Europe should consider building up strategic gas reserves. It also seems advisable to continue to improve energy efficiency in all areas and consistently expand renewable energies as part of its energy and climate strategy.

21 May 2014

Quality of Day Care Affects Employment Patterns of Mothers with Toddlers - Stronger Link in Eastern Germany

When mothers with young children contemplate employment, a decisive factor is whether day care is available. Extensive research has been carried out on the subject. However, to date, it has failed to address the extent to which the quality of day care affects maternal employment decisions. We examine this research question using data from the Socio-Economic Panel Study (SOEP) and the extension sample Families in Germany (FiD) in conjunction with data from the child and youth services statistics. The official data allow us to measure the quality of day care centers in youth office districts. The data include, for instance, the size of groups in day care centers and the child-staff-ratios. Our analyses show a link between some quality characteristics and the employment patterns of mothers with children under three years. The link is stronger in Eastern Germany than in Western Germany. However, this only applies to characteristics which are also evident to parents, for example, the group size , but not qualifications of pedagogical staff. Overall, the findings indicate that high-quality child care can also be relevant for reconciling work and family life.

14 May 2014

Distributional Effects of Increasing the Insurance Periods Recognized for Bringing Up Children

The planned increase of the insurance periods recognized for bringing up children (Mütterrente) will increase the pension contribution rate by an average of 0.3 percentage points and reduce the gross pension level by an average of 0.4 percentage points by 2018. However, since government subsidies to the pension system are to be gradually increased from 2019, the longer-term impact on contribution rates and pension levels will be dampened, possibly at the cost of an increase of general taxes. Relative to net household income, the Mütterrente will primarily benefit low- and middle-income pensioner households, providing they have children born before 1992. From this perspective, the reform appears progressive. However, pensioners on a low income will only benefit if they are not claiming the basic minimum pension or, as a result of the Mütterrente - less than 30 euros per month per child - no longer qualify for the basic minimum pension. Pensioners who continue to claim the minimum pension will not benefit. This affects approximately three percent of women over the age of 65. At the same time, pensioners with higher incomes will be able to take full advantage of the reform. The bottom line is that those currently paying pension contributions and pensioners who do not have children born before 1992 will have to bear the cost.

7 May 2014

Work-Retirement Transition Pathways: Reforms Have Major Impact

Germany's draft bill to improve the benefits provided under the statutory pension insurance scheme (Gesetz über Leistungsverbesserungen in der gesetzlichen Rentenversicherungen) will entitle, in particular, those who have contributed for many years (at least 45) to retire early on a full pension (without any reductions to their pension payments) at the age of 63. The proposed reform is in stark contrast to the pension policies of past decades, even though the German government maintains it has no intention of changing course and still plans to pursue its objective of raising the retirement age. It is not currently possible to predict the effects of a statutory retirement age of 63. What is certain, however, is that statutory work-pension transition options and labor market policy framework conditions will have a significant impact on when people make the transition from working life to retirement. The German Institute for Economic Research (DIW Berlin) analyzed the impact of pension reforms over the last 20 years on the work-retirement transition of those born between 1932 and 1947. The study analyzed the retirement dynamic between 1990 and 2012 based on representative data from the German Socio-Economic Panel (SOEP). While official German Pension Insurance statistics primarily provide information on retirement age and type of pension, SOEP allows detailed analyses of developments in the phase leading up to retirement. A cluster analysis was used to identify typical work-retirement transition pathways and to examine the impact of labor market and pension policy framework conditions on the relative significance of these pathways in a comparison of cohorts. A further analysis was conducted to determine how the phase leading up to retirement changes between the ages of 58 and 65 in the cohort comparison. There are typically five pathways that characterize the work-retirement transition: in employment until statutory retirement age, in employment until early retirement, inactivity prior to retirement, unemployment prior to retirement, and early retirement or reduced earnings capacity pension. The work-retirement transition behavior of eastern and western Germans differs significantly. Findings clearly show that when options for early retirement exist, they are also used.

30 April 2014

Quality of Day Care Center Affects Children's Health

Previous studies on the impact of day care center attendance on child development have focused on quantitative aspects (e. g., capacity of the center). Yet the quality of a day care center is also relevant and is increasingly being discussed in the context of day care expansion. The discussion is often limited, however, to improving children?s skills and rarely addresses their health, although this is a key factor in their age-appropriate development. A study by DIW Berlin using data from the Socio-Economic Panel Study (SOEP) and official child and youth services data (KJH-Statistik) shows that regional differences in the quality of day care centers affect the development of children?s health. Preschool children attending a day care center with a high child-staff-ratio are more likely to be sick at the age of five and six. The study also demonstrates that entering early childhood care at four years of age or later increases the probability of illness at the ages of five or six, compared to children attending at a younger age.

9 April 2014

100 Years of Housing Policy: From Rent Freeze to Rental Brake

Housing rents in Germany have been rising for several years. Especially in major cities such as Berlin, Hamburg, and Munich, the increases have recently been higher than the German average growth rate of rents that makes up roughly two percent. The German government would like to respond to this development by introducing caps on rents for new rentals. But are rent really necessary? The growth rates of nominal rents went down markedly since the 1990s, from more than four percent at that time to about one percent on average over the past 15 years. In real terms, i.e., taking general inflation into account, rents have been even falling over certain periods. The problem of high rent hikes seems to be more common in large and university cities. One reason for this is the general trend towards reurbanization leading to significant population growth of the cities. This is coupled with a lack of elasticity of the housing stock in the short run. In particular, there is a shortage of small and inexpensive apartments. Housing policy should concentrate especially on this segment. Reduction of the real estate transfer tax or increased zoning of underused land within built-up areas for development might be an option, for example. Improved price statistics at the local level could also contribute to better market transparency. Instruments such as the Mietpreisbremse (literally a brake on rental prices), on the other hand, would make investment in rental housing less attractive and would exacerbate the housing shortage.

2 April 2014

Who Cares? The Significance of Informal Care by the Working Population in Germany

The daughter and son who take care of their parents or look after their neighbor who is no longer mobile while working at the same time: informal care is a central pillar of the German care system—particularly with regard to the aging population and the resultant increase in the demand for care. Between five and six percent of all adults regularly provide informal care according to DIW Berlin’s calculations for the years 2001 to 2012 on the basis of data from the Socio Economic Panel Study (SOEP). Around 60 percent of these women and men are of working age. The proportion of people in employment among all informal carers below 65 years of age has risen from just under 53 to almost 66 percent. The increase was greater among full time than part time employees although those in fulltime work combine caregiving and career significantly less frequently on average. The question arises how work and caregiving could be better reconciled because the need for (informal) care will continue to increase due to demographic change.The present report shows that informal carers are less satisfied in general and also with social security than those who do not provide informal care. However, the data give no indication that working at the same time amplifies this effect.

26 March 2014

Nuclear Power: Towards Phase-Out with Unresolved Questions of Storage of Nuclear Waste

Three years after the nuclear catastrophe in Fukushima one observes a certain momentum with regard to lifetime extensions as well as some interest in new building of nuclear power plants. Advocates of nuclear power argue in term of low-cost electricity generation, a secure supply as well as a contribution against climate change. The Reference Scenario of the European Commission - which sets the agenda on the EU Climate and Energy Strategy to 2030 - implies massive new buildings of nuclear power plants, not less than seven are forecasted for Poland alone. In Germany, too, voices are re-appearing that criticize the upcoming nuclear phase-out. However, DIW Berlin clearly derives that there is no "Renaissance" of nuclear power under way: the plans to construct new plants are concentrated in a few countries, mainly China. But foremost, the discussion neglects that nuclear power has never in history been produced economically, taking into account the costs of risks for mankind and the environment, the scrapping of nuclear waste, let alone the infrastructure of R & D and the corresponding national innovation system. The question where to store the highly radioactive waste is of yet unresolved. Phasing out nuclear is the safest and cost efficient strategy. The European discussion should not focus on analytical models that neglect a large part of the economic cost. Germany can continue its nuclear phase-out until 2022, without risking the supply security; this also holds for the upcoming closure of the Grafenrheinfeld nuclear power plant in 2015. Questions of scrapping old nuclear power plants and of long-term storage of radioactive waste have been ignored for a long time, they need to be addressed urgently now.

19 March 2014

Weak Inflation and Threat of Deflation in the Euro Area: Limits for Conventional Monetary Policy

Inflation in the euro area has been below the European Central Bank's target for almost a year now and it is also expected to remain at a very low level in the near future. On the one hand, such a low level of inflation is not in line with the ECB's objective. On the other hand, there is the risk that this situation will lead to a slide into deflation. In view of the ECB's historically low policy rates, the question arises as to which monetary policy options are available. In order to counteract possible deflation, primarily unconventional measures remain open to the ECB, such as outright purchases of securities. But the onus is also on fiscal and economic policy to actively address low inflation and the risks of deflation.

12 March 2014

A Modest Expansion Course

In 2014, the German economy is expected to grow by 1.8 %. Next year, GDP will increase by 2.1 %. The output gap will decline significantly this year, but will only be fully closed in the coming year. Inflation will remain low in this environment.

The upward momentum of the global economy weakened slightly in the final quarter of 2013. However, developed countries were almost able to maintain their pace of expansion which was propped up mainly by private consumption. This time, the stimuli also came from corporate investment activity. In contrast, the recovery in emerging countries could not keep pace with the dynamic growth of the previous quarter. Among other things, deteriorating external financing conditions and increases in policy rates impacted growth. Globally, monetary policies will continue to be very expansive. Moreover, the contractive impact of fiscal stimulus policies will also diminish. After a weak start to the year, the rate of growth in the global economy ought to accelerate again. Over time, the continuing low rate of inflation and the gradually improving situation on the labor market will support consumption in industrialized countries. As a result, companies are likely to increase their investment activity. The economies of emerging countries will benefit from increased imports in industrialized countries. On the whole, the average annual growth rate of the global economy in 2014 and 2015 is predicted to reach 3.8 % and 4.0 %, respectively.

The German economy is experiencing an economic upturn. However, there will be no appreciable acceleration. On the one hand, the world economy will not reach the growth rates of the pre-crisis period, and the structural adjustments within the euro area have clouded the prospects of the German export economy long-term; on the other hand, the global economy is gradually gaining momentum, and uncertainties are fading. Companies in Germany are continuing to tentatively increase their investments, and are catching up on those shelved in recent years. The upward trend in the construction industry is continuing, but slowly losing momentum. The employment market will remain buoyant and wages will rise significantly. The introduction of the minimum wage will allow these trends to persist in the coming year. This will drive up private consumption which picked up momentum at the beginning of the year. Exports are gaining some ground in the context of the global economic recovery, while imports rose more significantly in the wake of increasing domestic demand. Foreign trade in net terms is not contributing to growth.

The public budget will end the year with a slight deficit, although next year will see a slight surplus in net borrowing. Without taking cyclical influences into account, the public budget in both years will end with a surplus, which will decrease, however, due to relaxed spending policies.

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