Unemployment In Germany

Approximately a year ago we predicted the rate of unemployment, UE, in Germany at the level of 11% in 2011. This prediction was obtained from the following model linking unemployment and labor force, LF:

UE(t) = 3.2dLF(t-5)/LF(t-5) + 0.08 (1),

where the change in labor force leads the unemployment by 5 (!) years. A comprehensive discussion of the model and data, as retrieved from OECD database, is given in [1].

For this study, we borrowed unemployment estimates from the DEStatis (Federal Statistics Office). They are slightly different from those provided by the OECD, and are issued at a monthly rate.

This is time to revise the prediction and estimates. Figure 1 presents the measured and predicted unemployment rate for the period between 2002 and 2012. All in all, both curves are very close, except the most recent period.

Because of the discrepancy, we have checked the DEStatis for corroborative data on labor force and found new estimates for 2006 through 2009, which are related to national concept. When (1) is applied, one obtains the open triangle curve with the new estimates.

We still consider the level of 11% in 2011 as a reliable estimate. From 2001 to 2009 relationship (1) worked well with the estimates of labor force from the OECD.

However, there is a possibility that the new estimates of labor force are not too bad, and actual unemployment in 2011 will not be above 10%. In 2010 the rate will reach the level between 8% and 9%.

This is a good example that one can predict the future evolution of macroeconomic variables, but the past is unpredcitable. It is a common feature when statistical agencies revise their past estimates.

Figure 2. Observed and predicted rate of unemployment in Germany.