Germany’s jobs record masks hidden flaws; Number of temporary workers has trebled in 10 years

September 2, 2013 2:02 pm

Germany’s gold standard jobs record masks hidden flaws

By Chris Bryant in Frankfurt

Angela Merkel has one key trump card when voters go to the polls in September: a record 41.8m Germans are now in employment. A decade after its sclerotic labour market caused Germany to be branded the “sick man of Europe”, the country is the envy of a continent only just crawling out of recession while still grappling with record unemployment in many nations But the German “jobwunder” has come at a cost – the big increase in low paid, precarious types of employment such as part-time work, temporary contracts, so-called “minijobs” and outsourcing.Andreas Wegner, who runs a jobcentre in the east German town of Neubrandenburg, 60km from the village where Ms Merkel grew up, tells of customers “who have full time jobs and yet who can’t support themselves and their families”

Some local people in service sector jobs that require few skills earn as little as €5 an hour, he says, and therefore struggle to pay the rent and put food on the table.

“It’s rare for a customer to say I won’t work for that kind of money. Work is about more than what you get paid . . . [But] if it was in my power I’d gladly pay them more,” Mr Wegner says wistfully.

There is no across-the-board minimum wage in Germany unlike in a majority of EU countries.

The subject has become an election issue ahead of the 22 September poll, with the left-of-centre Social Democratic Party proposing a national minimum wage of about €8.50 an hour and Ms Merkel’s conservative Christian Democratic Union responding with a series of proposed “wage floors” that could vary by industry and place.


The clash of visions came up in Sunday night’s televised election debate between Ms Merkel and Peer Steinbrück, the SPD’s candidate for chancellor. Mr Steinbrück accused Ms Merkel of seeking to introduce a “patchwork rug that varies from industry to industry and place to place,” whileMs Merkel countered that wages should be set by the “social” market economy rather than politicians.

A recent Institute for Employment Research (IAB) study found wage inequality in Germany has increased since the 1990s, particularly at the bottom end of the income spectrum.

About one quarter of the German workforce receive a “low income” wage, using a common definition of one that is less than two-thirds of the median, which is a higher proportion than all 17 European countries studied by IAB, except Lithuania (comparable data were not available for the other 10 EU members).

Thomas Rhein, senior researcher at IAB, says: “There is a growing gap between regular full time jobs and the unemployed which is filled by people in temporary, precarious forms of employment. That is cause for concern.”

Germany’s 2003-05 labour market reforms (known as the Hartz reforms), introduced under Gerhard Schröder, former chancellor, were intended to boost its competitiveness by giving employers greater flexibility and helping the long-term unemployed back to work.

In Germany, one carefully counts each slaughtered pig, cow, chicken and lamb. But people who are hired by subcontractors are not counted [in statistics]. It’s inhumane

– Franz-Josef Möllenberg, head of the NGG Food, Beverages and Catering Union

Although the reforms were manifestly successful on one level – the number of unemployed declined from a peak of 5.2m in 2005 to 2.9m last year – trade unions say regular jobs have been displaced in favour of more precarious types of employment.

This is cementing the existence of an underclass of low paid workers on less dependable contracts who often work side by side with regular salaried employees.

Mr Rhein says: “The Hartz reforms didn’t create the low-wage sector but the reforms have certainly helped sustain it.”

The number of temporary workers in Germany has almost trebled in Germany over the past 10 years to about 822,000, according to the Federal Employment Agency.

Meanwhile, more than 7.4m Germans have a ‘minijob’ – a relatively new type of German contract that permits an employee to earn up to €450 a month tax free.

Popular with middle class housewives and students, minijobs have become widespread in service industries such as retail, hotels and restaurants.

However, for the majority of recipients, the minijob is their primary form of employment and hourly wages can be extremely low.

Minijobbers are commonly unable to set aside enough money for retirement and minijobs also have not proved the stepping stone to regular employment that many had hoped.

Germany’s growing use of subcontractors in sectors such as, breweries, bakeries and the meat processing industry is also a source of trade union concern.

“In Germany, one carefully counts each slaughtered pig, cow, chicken and lamb. But people who are hired by subcontractors are not counted [in statistics],” says Franz-Josef Möllenberg head of the NGG Food, Beverages and Catering Union. “It’s inhumane”.

In April, Belgium filed a complaint with the European Commission. It alleged that German meat processors are using outside contractors that employ Romanian and Bulgarians migrant workers on very low wages, thereby undercutting foreign competition. The Commission is assessing the claim.

There are some indications Germany’s low jobless rate is starting to weaken the trend towards more precarious employment; as employers find it harder to find workers they are forced to create more attractive full time positions. However, German politicians have already been stirred to act.

Referring to the high number of low paid workers, Mr Steinbrück, told a conference last week: “Germany is an economically strong country, but that is not the whole truth”.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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