The Week magazine produced a very informative article on the German Labour market which focused on the creation of mini-jobs and their impact on the German economy. The German economy is racing ahead of the pack in the eurozone area and when you look at its fundamentals you wonder if it is going lap its counterparts. With unemployment in the eurozone reaching an all-time high of 10.7% the level in Germany is at its lowest for for 20 years at 6.7%. The German success is due in part to the weakness of the euro which has fallen 15% against the US$ since 2008. The weaker euro makes all European exports cheaper and Germany has been very well placed to take advantage of this. – in 2011 it recorded a trade surplus of €158bn. However Germany wouldn’t be in this position if it hadn’t been for some major reforms in its economy 10 years previous. As the other EU countries relaxed labour laws Germany used the global boom to tighten its regulations.
By early 2000, and 10 years after reunification, Germany was seen as the sick man of Europe. Unemployment had reached 10.5% by 2003 and then Chancellor Gerhard Schroder asked Peter Hartz (Head of HR at Volkswagen) to look at the labour market. He concluded that German work practices were outdated when a single earner could support households with 9 to 5 jobs at the same time there were generous unemployment benefits. In its place he proposed “mini-jobs” and 2007 10 million Germans had a mini-job with 7 million relying on them as their only source of income.
What are the benefits?
The main idea was to create as much flexibility as possible. The main characteristics are as follows:
1. Mini-jobs pay up €400 a month
2. Employers must assist another €100 to the state for social security benefits.
3. As long as the €400 limits not breached, workers pay no tax
4. They can do as many mini-jobs as they like.
5. The jobs are designed to be picked up and dropped at short notice.
This flexibility meant that during the major recession of 2009 Germany did not experience mass lay-offs. In fact the government implemented a programme which allowed employers to cut the hours of employees and the government would subsidise the remainder of the employees pay.
Although a very competitive low-wage economy was built it has widen the divide between the income levels in the labour market. In fact after the US and South Korea, Germany has one of the most unequal labour markets in the developed world. As there is no set minimum wage for “mini-jobs” a person can earn €4 a hour to under €1 per hour. With around 50% of the labour force in “mini-jobs” there is a free market in which wages have been falling. Between 2000-2010 average salaries rose, but low incomes – those below €960 a month – fell by 10%. Almost 1.5 million people with “mini-jobs” now rely on the state for benefits, including 358,000 who work full time but can’t live off their pay. See video clip below from Deutsche Welle.