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During the 1980s there existed a deep fascination in the UK with what makes Germany successful. This has dissolved somewhat in the last 15 years as Germany has struggled with the challenges of reunification and globalisation. Since 1997 the UK has focused on the drivers of productivity and wealth creation in the interests of closing the 'productivity gap' with the US. In contrast, productivity improvements in Germany have been regarded as something of a 'luxury problem' for policy makers who have had to facilitate systemic change in eastern Germany and adaptation in the old Länder. This paper looks at the systemic adaptation in Germany from a UK perspective and argues that, although structural reform still has some way to go, the endogenous growth drivers of the German economy are strong, and visibly stronger than in the UK. It is argued that commentators and policy makers alike have been ignoring the real issue in the debate about the future of the German economy. [ABSTRACT FROM AUTHOR]

In general, the 'mega-trends' represented by, for example, globalisation, the shift to a service economy coupled with high levels of technological change and a long-term shrinkage in the working population all make a more adaptable and skilled workforce in high income countries necessary. The pervasive effects of these mega-trends are often interpreted as suggesting that there is only one optimal institutional configuration to achieve good employment outcomes, which therefore needs to be adopted by all countries. As Britain seems closer to this ideal type than Germany, one would expect a better labour market performance in the former than in the latter, as well as a convergence in labour market policies and outcomes in Germany towards the British model. Taking into account the different starting positions of Germany and Britain, particularly with regard to important differences in monetary policy contexts, the paper evaluates whether and to what extent national public policy patterns are actually converging towards a higher level of flexibility. [ABSTRACT FROM AUTHOR]