Germany has a coordinated market economy with a skilled labor force and universal healthcare. Workers receive extensive industry-specific training and firms offer long employment in exchange. Works councils give employees representation in workplace decisions and help coordinate wages. In contrast, the US has a liberal market economy with fluid labor markets and employer-provided healthcare. The US labor force emphasizes general skills and mobility between jobs. Firms have unilateral control and workers have less representation. While the two systems seem different, their labor markets complement the strengths of each country's respective healthcare system.

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Brent Hamilton
IPEC 4396.002
Professor Bunte
17 April 2014
A Comparative Analysis of the Labor Markets and Healthcare Systems of Germany and the United States
Liberal market economy (L.M.E.) by nature contain firms that coordinate their activities primarily
via hierarchies and competitive market arrangements. Market actors adjust their willingness to supply and
demand goods or services, often on the basis of the marginal calculations stressed by neoclassical
economics. (Hall 8) Trade unions and employer associations in LMEs are less cohesive and
encompassing, economy-wide wage coordination is generally difficult to secure. Therefore, these
economies depend more heavily on macroeconomic policy and market competition to control wages and
inflation (Hall 29-30) and resolve the coordination problems that firms in coordinated-market economies
address more often via forms of non-market coordination that entail collaboration and strategic
interaction. (Hall 27) In contrast to liberal market economies, where the equilibrium outcomes of firm
behavior are usually given by demand and supply conditions in competitive markets, firms in coordinated
market economies are more often the result of strategic interaction among firms and other actors. (Hall 8)
This system is profound throughout Europe and notably in present-day Germany. We will evaluate this
system’s impact on the labor market first.
Germany is known for their high-quality brands in various global markets and the world revels in
lustful discussion when automobile royalty like Volkswagen, Mercedes-Benz, BMW, and Porsche, all
products of German engineering and ingenuity, act as a beacon symbolizing the flawless work, unlik e in
any other country, that can be produce there. But what are the Germans doing that gives them this well
deserved notoriety? The answer may lie within the policy that has shaped the foundation of which their
labor market has been built.
Workers are encouraged to acquire high industry-specific skills, and notably strong relational
skills appropriate for use within the family of companies within which they have been trained. To be
successful, market actors depend on education and training systems capable of providing workers with
the appropriate training needed. Many firms pursue production strategies dependant on workers with

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specific skills and in order to persuade workers to invest in skills of this specificity, have customarily
offered long employment tenures, industry-based wages, and protective works councils.(Hall 25) A
collaborative effort between big business and government officials has influenced the labor market in a
way that allows these organizations to strive. In the words of Hill and Soskice, “The economic returns to
the system as a whole are greater than its component parts alone would generate”.(Hall 27) Now let’s
take a look at the protective work councils and why they are important to the overall success and
sustainability of the highly-skilled labor force necessary in Germany.
The internal structure of the firms is usually cooperative. Top managers in Germany rarely have a
capacity for major decisions from supervisory boards, which include employee representatives as well as
major shareholders, and from other managers with entrenched positions as well as major suppliers and
customers. This structural bias toward consensus decision-making encourages the sharing of information
and the development of reputations for providing reliable information thereby facilitating network
monitoring. (Hall 24)
Germany's distinctive "dual system" of labor relations, German law has also established another
form of employee representation at the level of the individual firm: the works council. Work councils, which
are legally separated from unions, represent all workers in a workplace, whether or not they belong to a
union... They were originally created to provide workers with information, consultation, and co-
determination (veto) rights in aspects of workplace management. (Bowman Labor 197) The combination
of relatively centralized unions at the industry level with decentralized works council representation at the
level of the firm has helped Germany combine overall wage coordination with local flexibility. (198)
Work councils are intended to ensure that decisions made in the workplace are not made by
management alone. Works councils have the right to be consulted by management on most workplace-
related issues, and in some cases they have "codetermination" rights, meaning "management cannot act
without the consent of the works council". (200)
The right to establish a works council is guaranteed in all establishments with five or more
employees... in order for a council to be formed, either the employees themselves or the union that
represents the employees needs to take the initiative and request a council election... Works councilors
are protected against dismissal by employers, and employers are required to provide the time, space, and

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staff support required for the effective functioning of the councils... In firms with more than two hundred
workers, the law mandates that some works councilors should be free from their normal job duties so that
they can devote all of their time to works council tasks.(201-202)
The education and training systems of liberal market economies are generally complementary to
highly fluid labor markets. Many economists would compare the labor market in the United States to that
of a modern-day Renaissance man/woman. They are generally educated and adaptable to growth or a
changing economy. Vocational training is normally provided by institutions offering formal education that
focuses on general skills because companies are “loath to invest in apprenticeship schemes” (Hall 30)
imparting industry-specific skills where they have no guarantees that other firms will not simply poach
their apprentices without investing in training themselves. From the perspective of workers facing short
job tenures and fluid labor markets, career success also depends on acquiring the general skills that can
be used in many different firms... companies in these economies do a substantial amount of in-house
training, although rarely in the form of the intensive apprenticeships in CMEs. The result is a labor force
“well equipped with general skills, especially suited to job growth in the service sector where such skills
assume importance, but one that leaves some firms short of employees with highly specialized or
company-specific skills”. (Hall 30)
Firms in liberal market economies generally rely heavily on the market relationship between
individual worker and employer to organize relations with their labor force. Top management normally has
unilateral control over the firm, including substantial freedom to hire and fire. Firms are under no
obligation to establish representative bodies for employees and trade unions are generally less powerful
than in coordinated market economies.(Hall 29) In the US, worker's wages are mostly determined not
through collective bargaining but through individual negotiations with employers, in which we can
presume that employers have the upper hand. Conditions of work, such as the numbers of paid vacation
days, holidays, sick days, pensions and health insurance are guaranteed by national legislation or
mandatory programs, in Germany, are part of employment contracts in the US, and are generally much
less generous to employees. Employees have no right to consult with employers over management
practices.(Bowman Labor 226)

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Workers within a liberal-market economy, as described by Hall and Soskice, in my opinion have a
greater incentive to demand labor participation than those in a coordinated-market economy. There are
many reasons as to why this is the case but particularly in liberal market economies, firms generally rely
heavily on the market relationship between individual worker and employer to organize relations with their
labor force. (29) This means, unlike Germany, there are no laws in place that dictate or “coordinate”
interaction between employees and employers, especially in management decisions. Top management
normally has unilateral control over the firm, including substantial freedom to hire and fire, and are under
no obligation to establish representative bodies for employees resulting in trade unions that are generally
less powerful. (29) Thus employees in a liberal-market economy have the greater incentive to demand
labor participation because there are no mandates establishing collaborative actions, which protect
employee’s rights. These firms will otherwise maintain complete autonomy over their employees in
regards to all upper-level decisions and bargaining leaving the little-guy to accept all terms of
employment, contractually and without representation, and hope the firm is merciful. Unfortunately, if they
are not represented in an equal manner in negotiating wages and other conditions of work there is
opportunity to be exploited or otherwise unemployed.
Economists have long believed that skills levels can be important to comparative advantage, and
the analysis of Hill and Soskice suggests that the availability of labor with particular types of skills will be
dependent on precisely the kinds of institutions that distinguish liberal from coordinated market
economies... high levels of industry-specific skills like in CME may provide those nations with advantages
for producing goods that require such labor, while the fluid labor markets and support for the development
of general skills in LMEs may make the production of goods and services that require less skilled but
lower-cost labor more viably. (Hall 44) In other words countries like Germany have a larger demand for
highly-skilled specialized labor and in contrast, like in the United States, the labor market is more
reflective of an employee that can be manipulated to do a number of different things. Simply, if I was a
German laborer I would be the best at taking a Phillips screwdriver and screwing a bumper onto a family
of vehicles; however, if you give me a flat-head screwdriver, it may be very difficult for me to adjust as I
have been trained extensively on how to use a Phillips screwdriver. The opposite is true for the United
States laborer. Uncle Sam could not tell you how to put the bumper on a BMW and a Volkswagen but

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could put the bumper on using either screwdriver and learn to fashion the components to produce a car
that will fly, making his previous career obsolete. Overall the American labor force is more adaptable and
flexible to growth or changes.
Germany's health care system is organized in a way in which employers and employees make
contributions to large, jointly managed insurance funds that pay private providers for care (82) and
premiums are a defined-contribution as a percentage of income for employees and is shared between
employees and employers. (Bowman Health 85) Individual citizens do not have to concern themselves
with the out-of-pocket expenses that may accompany a procedure, as the costs are low for everyone.
"The possibility of economic ruin as the result of catastrophic medical expenses or the denial of basic
insurance coverage simply does not exist." (90) In the United States, concerns about paying for health
care can directly influence our decisions on the kind of career to pursue, to hold a job we are unhappy in
based solely on benefits, or even whether to remain in an unhappy marriage. (90)
In the U.S., the private insurance market developed far beyond the plans found in Germany. By
the time nationalized health insurance reached the public agenda, in the United States, "private
healthcare was a huge and profitable business." (57) The American health system combines government
insurance with a system of private employer-sponsored insurance for most working-age families. Health
care is seen as a commodity to be exploited on the market and coverage for insurers is voluntary and
therefore incomplete, leaving thousands without health coverage. The largest factor is not need but rather
ability to pay. (85) If you can afford your care, you can afford the highest quality care in the world.
"Inequality of access is connected to inequality of outcomes." (85)
When you first evaluate the health care systems of Germany and the United States and compare
them to their labor markets, the findings are almost counter-intuitive. Germany, known for specialized
labor, has a health care system that does not focus on being at the forefront of medical technological
advances but rather they are concerned with providing care at a low cost for everyone. The United
States, known for well-rounded labor, is not concerned with providing care for everyone at a low cost but
rather having the most progressive market for preventative care, and major technological advances. So
how can it be explained? The answer may be hidden in how the training and skills developed during our
most fruitful years in the labor market allow people to work much longer than previously. Americans are

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more easily able to adapt to an ever-changing economy and thus indirectly influence the healthcare
market. In the United States, our healthcare system wishes to eradicate the extremes and thus is highly
effective in preventing, diagnosing, and treating those outliers, which are on average experienced by
older or unhealthy people. Thus creating the demand I spoke of. In Germany, the labor market is
specialized and great at what they do. However, this leaves them susceptible to sweeping changes in
their economy which in turn may make their job obsolete. The healthcare system that is in place protects
its citizens seemingly in a random and circumstantial way from them losing their jobs and (if under the
health care coverage of the United States) losing their health benefits. So, the labor markets seem to fall
in line with the strong points of each health care system uniquely. It is shocking, upon peeling back the
layers and taking a critical look into two seemingly non-related principle systems, labor and health care,
how complex but none-the-less complementary they truly are.

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References
Bowman, John R. 2013a. Health Policy. In Capitalisms Compared: Welfare, Work, and Business. CQ
Press.
Bowman, John R. 2013b. The Labor Market. In Capitalisms Compared: Welfare, Work, and Business. CQ
Press.
Hall, Peter A. and David Soskice. 2001. An Introduction to Varieties of Capitalism. In Varieties of
Capitalism, ed. Peter A. Hall and David Soskice. Oxford University Press, USA.