The latest data out of Europe shows unemployment in the EU periphery significantly worsening, economic growth rates in Germany, France, Italy and Spain hovering between 0 to -0.3% and German industrial output and exports falling 2.9% and 4.3% in December month-over-month respectively, which are the fastest rates of contraction experienced since January 2009. Clearly, all is not well in the real economic sectors of Europe.
Yet, one recent data point that stands out, at least for now, is Germany’s record level of employment. The unemployment rate currently stands at 6.7% according to official data, contrasted with the 23% in Spain and 18% in Greece. As with most official numbers in the “core” countries of the global economy, the picture gets much worse when one digs just a little bit beneath the surface [see the recent U.S. jobs report]. Sarah Marsh and Holger Hansen report on the “dark side” of Germany’s labor sector for Reuters.
Wage restraint and labor market reforms have pushed the jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive.
But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.
Labor office data show 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 former communist east German states.
“I’ve had some people earning as little as 55 cents per hour,” said Peter Huefken, the head of Stralsund’s job agency, the first of its kind to sue employers for paying too little. He is encouraging other agencies to follow suit.
Data from the European Statistics Office suggests people in work in Germany are slightly less prone to poverty than their peers in the euro zone, but the risk has risen: 7.2 percent of workers were earning so little they were likely to experience poverty in 2010, versus 4.8 percent in 2005.
It is still lower than the euro zone average of 8.2 percent. But the number of so-called “working poor” has grown faster in Germany than in the currency bloc as a whole.
It should be quite obvious by now that the current system is structured to place countries in certain designated roles, which often masks the reality of what’s happening to the people within them. You have your trade surplus (creditor) nations and your deficit (debtor) nations, your producer nations and consumer nations, your “deregulated” nations and your “socialist” nations. But the reality of a complex, dynamic global economy is much different than these simple labels would suggest.
As the report quoted above makes clear, Germany’s deregulated and uber-competitive labor market has come at the expense of growing risk of poverty and drastic wealth inequality. Normally, no one would pay attention to these consequences of shrinking corporate costs, but now that corporate profits are coming under pressure from the revenue side (depressed domestic demand and exports), they are forced to. Some people actually praise the “flexibility” and low-skill requirements of Germany’s “mini-job” sector, but it is really nothing more than a recipe for disaster.
Employers have little incentive to create regular full-time jobs if they know they can hire workers on flexible contracts.
One out of five jobs is a now a “mini-job,” earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.
“Regular full-time jobs are being split up into mini-jobs,” said Holger Bonin of the Mannheim-based ZEW think tank.
And there is little to stop employers paying “mini-jobbers” low hourly wages given they know the government will top them up and there is no legal minimum wage.
Trade 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 becircumvented.
“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 in Stralsund who declined to give his name.
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.
Low wages for mini-jobbers and increased pressure on the unemployed to get a job have had a deflationary impact on salaries across the board, some economists say.
As more and more German people have slipped into the poor class of temporary mini-workers, increases in wage inequality between the low-wage workers and everyone else have outpaced that of every other OECD nation except South Korea and the United States. So while everyone focuses on the unsustainable deficits and “socialist” policies of the Euro periphery, we should remember that super-producers like Germany have their own unsustainable roles to play in our current global and systemic crises.
“Whatever government comes next, measures to make the workforce more flexible will not pick up at the same pace. We’ve reached a critical mass and I think it won’t go much further.”
ILO’s Ernst says Germany can only hope that other European countries do not emulate its own wage deflationary policies too closely, as demand will dry up: “If everyone is doing same thing, there won’t be anyone left to export to.”
Exactly! The situations that various nations now find themselves in are largely a function of complex historical circumstances and their evolution over time. It is a history marked by forms of colonial oppression and concentration of wealth/resources, as well as malice, corruption and over-consumption. We cannot simply divide those features up and attribute them to one country or another, as they simultaneously exist in almost all countries.
There is no doubt that some fit better into specific paradigms than others, but they are all sides of the same surface. It is a surface of economic, social, cultural and political organization that has been stretched to its limits, and can no longer remain one cohesive structure. Greece is not causing the systemic deterioration any more than Germany is, and the same obviously goes for everyone else. Unfortunately, most people who actually make top-down decisions in complex societies fail to recognize that reality until it is far too late to make a difference.