IfW Press Release September 28, 2007
The Automotive Industry: Investment Abroad Generates Increased Employment in Germany
It has been widely feared that the shifting of production by German car makers to Central and Eastern Europe has caused a decrease in employment in Germany. The opposite is the case, however. Since 1995, 160,000 new jobs have been created in the German automotive sector. This is the main finding of a study by Henning Klodt that has recently been published in the List Forum.
Klodt states that this finding, which is surprising in the light of the current globalization debate, is due to the investment motives of multinational companies. Recent studies have shown that multinational companies are not primarily interested in taking advantage of lower labor costs in particular countries, but rather in establishing global value-added networks that they can use to better exploit their superior technological know-how. If a German car maker develops a technology in Germany that enables it to produce at a lesser cost, this technology can be used in its foreign subsidiaries at virtually no extra cost. As a result, development costs per each car sold are lowered, which, in turn, creates incentives to increase R&D activities in Germany, and this creates new jobs.
Over the last ten years, the number of people employed by German car makers in Central European, Eastern European, and Asian reforming countries has increased from 38,000 to 100,000. During the same period, the automotive sector’s import and export trade with these countries has also developed much more dynamically than with other countries. This is due to the intensive mutual trade in preliminary products that is characteristic of value-added networks. As a result, 160,000 new jobs have been created in the German automotive sector since 1995, which is an increase of more than 20 percent.
Klodt emphasizes that “it makes little sense to cry over jobs that have been shifted to other countries, because their being shifted is a major precondition to be able to make employment in Germany more profitable.”