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East-west pay gap

July 13, 2011

Workers in eastern Germany receives significantly less pay than their coutnerparts in the nation's west. Weaker industry and collective bargaining are being blamed for the westward migration of skilled workers.

Symbol picture for salaries
Pay scales vary between eastern and western GermanyImage: www.BilderBox.com

Soon after the Berlin Wall fell in 1989, the Federal Republic of Germany and the economically emaciated German Democratic Republic were coupled. More than 20 years later, eastern German workers still earn as much as 33 percent less than their western counterparts.

Of the 100 professions surveyed by the Hans Böckler Foundation in Dusseldorf, only eastern Germany's hairdressers and letter carriers earn more money than their counterparts in the West.

Reinhard Bispinck, a collective bargaining expert at the Hans Böckler Foundation, says German leaders need to bring pay levels into alignment and stem the flow of qualified workers leaving eastern Germany.

A union strike
Less collective bargaining has contributed to lower salaries in eastern GermanyImage: ap

"The main problem is that a split economic zone could become permanent," Bispinck told Deutsche Welle. "It is in our overall economic interest to have even economic development throughout the states."

According to Bispinck, limited collective bargaining in eastern Germany is a major factor in the discrepancy. In that part of the country, only every other employee is paid based on a collective agreement, as compared to 63 percent elsewhere.

Smaller businesses

But the problems are also structural, Bispinck added.

"The eastern German economic structure is different from the western German one," he said. "There are many more small and medium-sized businesses, which generally pay less than their large counterparts. Also, the export-heavy sectors that pay well are represented less in eastern Germany - metals, electronics and chemicals, for example."

According to Martin Gornig, an economist at the German Institute of Economic Research, large industrial companies drive up pay levels as small- and medium-sized companies are forced to compete for qualified labor. East Germany has less such companies.

Symbol picture for industry
Industrial output and pay in eastern Germany are lower than in the westImage: AP

"Those companies actually pay comparatively equally, but there are relatively few of them (in the east)," he told Deutsche Welle. "Because of that, the mechanism never comes into play where they take the lead and the higher pay is projected into other sectors. If no one around is paying high salaries, then companies don't have an incentive to pay more."

Gornig added that low cost of labor has potential to attract companies to eastern Germany. But they aren't necessarily seeking to reduce costs that way, he said. After all, much less expensive labor forces are available internationally. Instead, they are likely to seek available skilled workers in eastern Germany.

"It is a phenomenon that low salaries are a signal for underemployment in a region," he said. "What's relevant for the future is that - at the point where labor becomes scarce - companies will go to where they can still find workers."

Collective bargaining

East Germany
Eastern German states continue to trail the rest of the country economicallyImage: picture-alliance/ZB

Reinhard Bispinck from the Hans Böckler Foundation added that eastern Germany still hasn't caught up to the western states in terms of economic output - measured in the country's gross domestic product. Instead, the gap has remained consistent.

"Of course we need to consider what measures could be used to close the income gap between east and west," he said. "At the moment we're observing increased activity from unions, employers' organizations, and the political establishment in eastern Germany to strengthen collective bargaining. The economic calculation behind this is that one is trying to stop the exodus of qualified labor from eastern Germany."

Author: Gerhard Schneibel
Editor: Sam Edmonds