Thursday, February 09, 2012

Germany's Job Miracle - Who Pays?

The German model is often cited as an example for European nations seeking to cut unemployment and become more competitive. Wage restraint and labour market reforms have pushed the jobless rate down to a 20-year low. The reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality. Low wage workers earn less relative to the median in Germany than in all other OECD states except South Korea and the United States.

Anja has been scrubbing floors and washing dishes for two euros an hour over the past six years. She is bewildered when she sees newspapers hailing Germany's "job miracle". "My company exploited me," says the 50-year-old, sitting in the kitchen of her small flat in the eastern German town of Stralsund. "If I could find something else, I'd be long gone."

The low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the "job miracle" has not prompted Germans to spend much more than they have in the past. Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the eastern German states. The number of so-called "working poor" has grown faster in Germany than in the euro-bloc as a whole. Job growth in Germany has been especially strong for low wage and temporary agency employment because of deregulation and the promotion of flexible, low-income, state-subsidised so-called "mini-jobs".

The number of full-time workers on low wages - sometimes defined as less than two thirds of middle income - rose by 13.5 percent to 4.3 million between 2005 and 2010, three times faster than other employment, according to the Labour Office. Jobs at temporary work agencies reached a record high in 2011 of 910,000 -- triple the number from 2002 when Germany started deregulating the temp sector.

Low-income, government-subsidised jobs - a concept being considered in Spain - have proven especially problematic. Some economists say they have backfired. They were created to help those with bad job prospects eventually become reintegrated into the regular labour market, but surveys show that for most people, they lead nowhere. Employers have little incentive to create regular full-time jobs if they know they can hire workers on flexible contracts. Regular full-time jobs are being split up into mini-jobs. There is also little to stop employers paying "mini-jobbers" low hourly wages given they know the government will top them up. The deregulation of temporary agency work has also given employers less incentive to hire workers on staff contracts with job protection and decent pay. Temporary workers are often paid less than staff in Germany.
The unions and employers in Germany traditionally opt for collective wage agreements, arguing that a legal minimum wage could kill jobs, but these agreements only cover slightly more than half the population and can be circumvented. "A lot of my friends work as carpenters, but companies describe them as janitors in their contracts to avoid paying the salary negotiated in the collective wage agreement," said one 33-year-old unemployed man.

Those low wages for mini-jobbers and the increased pressure on the unemployed to get a job have had a deflationary impact on salaries across the board.

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