Wednesday

6th Jul 2022

Analysis

Poor pay: the flipside of Germany's low unemployment

  • Low wages, easy to hire and fire - the core of the German labour market model (Photo: Wonderlane)

With its record-low unemployment (5.4%), Germany stands out among fellow eurozone countries such as France or Spain, suffering from sky-high jobless rates.

Part of Germany's success is due to a series of reforms pushed through by the Social-Green government of former chancellor Gerhard Schroeder ten years ago, overhauling the labour market and welfare system.

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He made it easier for companies to hire and fire, lowered taxes and limited social benefits. The Schroeder model is now viewed as a must-do for crisis-plagued EU countries in the south.

But the flipside of Germany's high employment rate is low-paid and unstable jobs.

A debate in the German Bundestag on Thursday (25 April) focused on the widening income gap and social inequality, as Social-Democrats and Greens unsuccessfully tried to introduce a German minimum wage.

Social-Democrat leader Peer Steinbrueck, who is challenging Angela Merkel for the chancellorship in September elections, said the minimum wage is needed for a "socially just economy."

Labour minister Ursula von der Leyen noted there is a "widening income gap." But she put the blame on the old Red-Green government which crafted the "lousy" model.

She said that no across-the-board minimum wage is needed because the most vulnerable sectors - like construction or healthcare - already have "minimum wage thresholds."

According to government statistics published by the Sueddeutsche Zeitung, hundreds of companies do not respect the thresholds, however.

The firms have been fined, but with too few inspectors, the risk of being caught is small enough to encourage evasion.

For his part, Enzo Weber, a macroeconomics and labour market professor at the Regensburg University, says that even if Germany introduced a minimum wage, it would not solve the social injustice problem.

"The reason why problems are big in the low-income area is because there are too many low qualified workers for too few adequate jobs," he told this website also on Thursday.

He said German labour market policies still focus on unemployment per se - to get people into any kind of job, whether it is temporary or low-paid, or to get them into self-employment.

"There is virtually nothing for the people with low qualifications to get a job in a middle-qualified area. That's where there are a lot of jobs available, but not that many to take them, because it requires extra training. And that's where we should focus the labour market policies on," Weber noted.

He said the German model might not be so easy to export to Italy or Spain because the crisis has created special conditions.

"Germany was lucky with the timing, the reforms were introduced when the economy was not as bad as it is now for the crisis countries, with recession and massive unemployment. It may be easy for us Germans to say:'Let them do it, we've done it as well.' But we were not in a crisis like they are," he explained.

"The model also has disadvantages - it has drifted more in the direction of precarious employment," he added.

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