* Jobs miracle fuelled by low-wage sector boom
* More wage inequality, working poor in Germany
* Germany reregulates jobs market as Europe deregulates
By Sarah Marsh and Holger Hansen
STRALSUND, Germany, Feb 8 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."
Stralsund is an attractive seaside town but Anja, who
preferred not to use her full name for fear of being fired,
cannot afford the quaint cafes.
Wage restraint and labour 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.
Labour 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.
In response, as other European countries rush to deregulate,
Germany is re-regulating.
Angela Merkel's conservative government is trying to water
down the effects of some labour reforms brought in by her Social
Democrat (SPD) predecessor Gerhard Schroeder, a year-and-a-half
before the next federal election, when she is expected to seek a
The contrast between Germany's record levels of employment
and the dire jobs situation elsewhere in Europe is stark.
Last year, the number of people in employment in Germany
rose above the 41 million mark for the first time. The jobless
rate has been falling steadily since 2005 and now stands at just
6.7 percent, compared to 23 percent in Spain and 18 percent in
It has been a tough battle since German unemployment peaked
after reunification in 1990. Many east German businesses
floundered in a free market once the Berlin Wall fell, sending
joblessness there soaring over 20 percent.
Globalisation put Germany's export-reliant economy under
competitive pressure, forcing it to adjust quickly.
By 2003, Germany was embarking on reforms hailed as the
biggest change to the social welfare system since World War Two,
even as many of its peers were moving in the opposite direction.
While the French Socialists were introducing the 35-hour
week and cranking up minimum wages, Germany's Social Democrats
(SPD) were deregulating the labour market and raising pressure
on the jobless to find work.
Unions and employers agreed wage restraint in return for job
security and growth. Flexible working practices and
government-subsidised reduced working hours enabled employers to
adjust to the economic cycle without hiring and firing.
From 2005, joblessness started to fall and is nearing
pre-reunification levels. Elsewhere in Europe, governments
tackling high unemployment are playing catch-up, making labour
reforms the number one priority.
France's conservative President Nicolas Sarkozy has
repeatedly cited Schroeder's "Agenda 2010" reforms as an example
for his country over the past few months. Labour reforms being
introduced in Spain and Portugal have also borrowed heavily from
"BEST LOW WAGE SECTOR IN EUROPE"
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
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 Berlin
started deregulating the temp sector.
Economists say it was Schroeder's intention to bring about a
rapid expansion of these sectors in order to get the
poorly-qualified and long-term unemployed back into the
In 2005, Schroeder's last year as chancellor, he boasted at
the World Economic Forum in Davos: "We have built up one of the
best low wage sectors in Europe."
Seven years later, employers praise the reforms that led to
the growth of mini-jobs and temping.
"The unions' argument that (mini) jobs lead to working
conditions becoming precarious in Germany is not valid," said
Mario Ohoven, head of the main association of "Mittelstand"
small and medium-sized firms.
Ohoven said they were particularly popular with women and
students trying to earn some extra cash, while Juergen Wuttke of
the BDA employers' group said the reforms gave companies more
flexibility and the ability to hire more people for low-skilled
jobs with low productivity.
Fritz Engelhardt, who runs a small three-star hotel in the
south-western town of Pfullingen, says he employs two
"mini-jobbers" to help out at the weekend and run small errands.
"Many people in catering try to deal with peaks in work at
the weekend or when they have special events by hiring
mini-jobbers," Engelhardt said. "With big chains, hotels can use
workers from a sister company, but for small and medium-sized
companies mini-jobs are crucial to their very existence."
Even German corporate giants rely on these new forms of
employment for greater flexibility. Adidas, the world's second
largest maker of sports apparel, and supermarket chain Kaufland,
part of the same group as discount chain Lidl, both use
mini-jobs to fill in staffing gaps when business picks up.
Data from the Organisation for Economic Co-operation and
Development shows low-wage employment accounts for 20 percent of
full-time jobs in Germany compared to 8.0 percent in Italy and
13.5 percent in Greece.
ROAD TO NOWHERE
Critics say Germany's reforms came at a high price as they
firmly entrenched the low-wage sector and depressed wages,
leading to a two-tier labour market.
New categories of 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.
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 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 in Stralsund who declined to give his
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.
While wage inequality used to be as low in Germany as in the
Nordic countries, it has risen sharply over the past decade.
Low wage workers earn less relative to the median in Germany
than in all other OECD states except South Korea and the United
"The poor have clearly lost out to the middle class, more so
in Germany than in other countries," said OECD economist Isabell
Depressed wages and job insecurity have also kept a lid on
domestic demand, the Achilles heel of the export-dependent
German economy, much to the exasperation of its neighbours.
"Import demand is low, even though Germany is one of the top
performers in the euro area and could contribute more to a
stronger performance of its partner countries," said Ekkehard
Ernst of the International Labour Organization (ILO).
With the 2013 elections looming and European neighbours
complaining of trade imbalances, Germany's leaders have brought
the issue of low wages back onto the agenda.
Chancellor Merkel plans to introduce a minimum wage for the
sectors which do not already have one and Labour Minister Ursula
von der Leyen is campaigning for temp workers to get paid as
much as staff.
"The fact that we have a conservative government that is
discussing the establishment of a minimum wage - that says
something," said Enzo Weber of Germany's Institute for
Employment Research (IAB).
"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."