Germany′s Low-Wage Explosion Worries Experts | Business| Economy and finance news from a German perspective | DW | 18.04.2008
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Germany's Low-Wage Explosion Worries Experts

Germany's economy appears to be humming along, with unemployment figures at their lowest in 15 years. But this development is being driven by what experts say is a "worrying" explosion in the low-wage sector.

A window washer cleans the Federal Chancellory in Berlin

Over 20 percent of Germans are employed in the low-wage sector

Over the past 10 years, the number of people considered to be low-wage earners in Germany increased from 15 to 22 percent, reaching a total of 6.5 million people, a new study has found.

One in five Germans today works in the "low-wage" sector and, as of last year, some 200,000 employed people resort to taking an additional "mini-job" to make ends meet.

"The conclusions for Germany are worrying," said Gerhard Bosch of the University of Duisburg-Essen's Institute for Work, Skills and Training (IAQ), which carried out research for the study in Britain, Denmark, France, Germany, the Netherlands and the US.

The development is in part due to the German government, which has intentionally been expanding the low-wage sector in recent years in order to bring down the country's high unemployment levels.

A general shift

Workers pack sausages at a factory near Schleswig

With the boom in low-wage jobs, the middle class is in danger of eroding

But Bosch's colleague at the IAQ, Dorothea Voss-Dahm, told DW-WORLD.DE that a general shift in society is also to blame.

"For so many years, we've heard that Germany is inflexible in its labor laws," she said. "Now, companies and employee associations are saying, let's try something different."

The low-wage explosion could not have happened without the introduction in 2003 of the so-called "mini-job" in Germany. Under the scheme, employees can earn 400 euros ($630) month and are exempt from paying tax and social insurance contributions. But according to Voss-Dahm, employers have seized on mini-jobs as a way to push wage levels down, with the result that the wage gap is widening, and Germany's middle class shrinking.

"If the middle class erodes, then over the long term, our whole society will change," Voss-Dahm said. "The middle class is the layer upon which our society was built."

Authors surprised by unflattering picture

A German Labor Union slogan to draw attention to the need for a minimum wage reads Poor despite employment

More Germans are learning what it feels like to be "poor despite employment"

The study on low-wage sectors in Europe and the US showed that, with 22 percent of the workforce considered low-wage earners, Germany has already eclipsed Britain (21.7 percent) and is catching up with the US (25 percent).

"If the government doesn't do anything to turn this around, Germany's low-wage sector could become larger than that of the US, where every fourth person is a low-wage earner," American economist Robert Solow told the Frankfurter Rundschau.

The authors of the German study admitted that they hadn't expected "such unflattering results."

In comparison with the US, low-wage earners in Germany are still better off, as the social net ensures they have health insurance, paid vacation and generous pension benefits. But the idea that Germany's economy is bolstered by low-wage jobs and people who have to work several jobs just to survive is new.

"In Germany, we've only just begun to realize that poverty could become a problem," said the IAQ's Voss-Dahm.

She said the government could take two corrective steps: Abolish the mini-job regulations, which would remove the incentive for companies to lower wages; and introduce a minimum wage which would ensure that even those in lower paying jobs can still make ends meet.

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