Low wages in Germany

August 26, 2011

This New York Times story has it right: the German labor market now includes a sizable low-wage segment. This book has a very helpful comparison of developments in Germany with those in Denmark, France, the Netherlands, the United Kingdom, and the United States. My take on what this implies for incomes, poverty, and policy is here.

2 Responses to “Low wages in Germany”

  1. genauer Says:

    The German labor market has alway included a low wage segment, Just like everywhere else. In former times it was called the 640 DM Gesetz (would be 330 Euros, no suitable wiki entry ! , interesting) and simple black market, especially for household help. Now you have the 400 Euro Minijobs, but with insurance benefits, which is good. They compare some low gross=net per hour payment (not including state help) with a monthly highly taxed gross payment, just make the difference look huge. As I have said before net p10/p50 = 0.50 income ratio, and nobody really below that, just contact your colleagues at DIW about SOEP (http://diw.de/documents/publikationen/73/diw_01.c.357505.de/10-24-1.pdf, same income distribution in 2009 as it was in 1992). But now that shows up in the statistics. Typical socialist agitators, who would prefer people doing nothing and organizing riots, like in the UK. But I doubt it very much that this makes people happier. We also have these 1-Euro Jobs here in Germany, where people on social minimum are required to show up for some kind of work, which were supposed to (lets not use this word punish) get back into working habits and also a simple way to not let them work on the black market, while on the dole. It turned out that actually a lot of those folks are happy with that and stopped looking for real jobs, the opposite of what was intented, Thats why those programs are now, lets say, de-emphazised.

    Soo, none of the NYT stuff is technically wrong, but it is severely misleading to wrong conclusions and policy recommendations.

    I think there are a couple of things, which make Germany tick, like Kurzarbeit, the apprenticeships (“Lehre”), 50 % of the board seats of corporations taken by the unions (Mitbestimmungsgesetz), which depend on the specific local history and culture, you simply can not replicate in the US or outside Center/northern Europe in general. There is a much higher desire for consensus (“sozialer Frieden”) and avoiding severe conflicts, which has as a downside more intolerance for minority opinions. General minimum wages are, imho, a bad idea. I did a side job 20 years ago for 5 DM (2.6 Euro) an hour (with a waiting list for applicants) and that was just fine for that job, I started 5 years later with a 6 digit salary real job.

    The best thing for low income people is low unemployment, and therefore real competition for workers. Unemployment is now down to 3.5 % in southern Germany (http://www.stmwivt.bayern.de/fileadmin/Web-Dateien/Dokumente/wirtschaft/Arbeitsmarkt.pdf) My cleaning lady demanded and got an accumulated pay raise of more than 50 % in the last 3 years.

    Just one last thing, which are probably hard to believe for you and your students, “tax cuts” is a dirty word here around.

  2. JNCohen Says:

    “Tax cuts” should be a dirty word everywhere. The idea that we should cut taxes to resolve this recession is so ridiculous, and can only be justified with crazy, over-elaborate theories that completely ignore the past thirty years’ economic record.


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