Das deutsche Rätsel

The article advances the hypothesis that Germany is unable to increase its gains from trade despite increasing trading volumes. High and rigid German wages argely result from the minimum wage constraint imposed by a welfare state that offers generous replacement incomes. Confronted by low-wage competition from post-communist countries, Germany overspecializes in capital intensive goods, which creates a pathological export boom in terms of added value produced in exports. In addition, the country overspecializes in downstream activities, which implies that export quantities grow faster than value added. The reasons which induce extremely high exports are the same as those which cause unemployment to rise and the economy to stagnate.