Inequality

Since the middle of the last decade the situation on the German labour market has made a significant change for the better. The number of people in employment increased by 2.7 million between 2005 and 2012. This trend was mirrored by a significant drop in unemployment to the lowest level since German reunification.

These successes have been accompanied by a change in public perceptions regarding the labour market. The actual number of people in work and out of work is no longer the key issue. What matters now are factors such as the "quality" of employment conditions and justice in terms of income distribution. In particular, widespread poverty caused by much-maligned "starvation wages" - especially in low-paid work - and increasing wage divergence in relation to educational attainment are the focus of vehement and sometimes acrimonious debate. This debate has found various forms of expression, including recent campaigns for more equitable wage distribution.

Statistics on poverty in Germany are alarming - at first glance.  The German Federal Statistical Office recently reported that “15.8 per cent of the population was at risk of poverty in 2012.” While this figure clearly suggests excessive levels of real poverty, note that it relates to the number of individuals “at risk” and not actually “poor”. Furthermore, the metric used by the Federal Statistical Office displays problems, despite being an internationally recognized standard. 

According to this standard, individuals are considered at risk of poverty if they receive less than 60 per cent of the median income earned in the economy. Two examples demonstrate how problematic this measurement can be. If all incomes double, the poverty rate remains the same. What is even more striking is that if all top earners moved abroad, the poverty rate in Germany would decline (simply because the average income drops, and consequently a greater number of people are above the poverty threshold). An alternative to such a questionable method of measuring poverty would be to use a poverty threshold expressed in monetary units. This is the method used, for example, in the United States. However, the resulting and far lower poverty rates do not square easily with redistributive ideology.

In Germany employees may qualify to receive supplementary long-term unemployment benefits if their wages are excessively low. Yet to generalise that long-term unemployment beneficiaries as a group are employees forced to accept “starvation wages” is completely absurd. A look at the numbers is illuminating. According to government statistics, only 1.35 million of the 4.6 million recipients of long-term unemployment benefits were economically active in June 2011. Of this 1.35 million, half earned a gross monthly income of up to EUR 400 to supplement their long-term unemployment benefits. This figure is made up mostly of housewives, students, and pensioners working in so called “mini-jobs” where employees are exempted from taxation and contributions to social security. Among the rest - 570,000 workers - only 329,000 worked full-time.  However, family size alone is sufficient to make the wages of this latter group not enough to live on. The number of single individuals in full-time employment who also receive long-term unemployment benefits totals approximately 80,000 regular employees and almost 57,000 self-employed individuals. Thus, the total number of individuals working full-time who nevertheless require a long-term unemployment benefit “top-up” is a mere 137,000 - of the 4.6 million long-term unemployment benefit recipients.

Finally, in its recent annual report, the German Council of Economic Experts addressed wage levels as they relate to educational attainment. Wages have in fact become increasingly stratified in Germany. Stratification has also been on the rise within lower income groups since the mid-1990s. Instead of demonising this development, critics should bear in mind these statistics reflect that the low-skilled unemployed have increasingly found jobs, albeit with lower wages that may be supplemented with long-term unemployment benefits. Is this not preferable to unemployment?