Low wages in a high-wage economy

Although widely regarded as as a high-wage economy, Germany has a significant low-wage sector. According to different definitions inequitable pay, between 2.18 million and 7.20 million full-time employees could be characterised as "working poor". Low wages are primarily found in the services industries with a predominately female workforce.

Compared to many other western industrialised countries, Germany has the image of being a high-wage economy with a relatively low inequality of incomes and living standards. This is mainly the result of the German system of branch-level central collective bargaining (Flächentarifvertrag), where almost all employees in any sector receive the same basic payment. Nevertheless, it is not widely known that there is still a large number of sectors and areas of employment where collectively-agreed basic wages and salaries are relatively low. This is the main finding of a recent study by the Institute for Economics and Social Science (Wirtschafts- und Sozialwissenschaftliches Institut,WSI) on low wages in Germany ("Niedriglöhne. Die unbekannte Realität: Armut trotz Arbeit", Gerd Pohl & Claus Schäfer (eds), VSA-Verlag Hamburg (1996)). The study was inspired by the European Commission which, in 1993, adopted an Opinion on an equitable wage, the main purpose of which was "to outline certain basic principles on equitable wages, while taking into account social and economic realities".

The Commission's Opinion has its origin in the 1989 Community Charter of the Fundamental Social Rights of Workers, which states that:

all employment shall be fairly remunerated. To this end, in accordance with arrangements applying in each country, workers shall be assured of an equitable wage i.e. a wage sufficient to enable them to have a decent standard of living.

The concept of an "equitable wage" is not easy to define because it depends very much on the economic and social standards of each country. Therefore, the WSI study takes two different criteria into account when assessing what constitutes an inequitable wage:

1. the widespread international convention which defines a low and inequitable income as lying below 50% of the average national wage; and
2. the definition of a minimum equitable wage as 68% of the average national wage, proposed by the Council of Europe's committee of independent experts for the implementation of the 1960 European Social Charter, which has been ratified by the German parliament.

The study's findings

According to the first criterion - below 50% of the average national wage - in 1975 there were about 1.86 million full-time employees (10.5% of all full-time employees) who qualified as "working poor", with an inequitable wage. In 1990, this figure had grown to 2.18 million (11.7%). Given that there is still an important gap between average male and female wages, it seems to be more accurate to take the average male wage as the reference point. This brings the number of full-time employees with an inequitable wage in 1975 to 2.44 million (13.8%), rising to 3.04 million (16.3%) in 1990.

According to the Council of Europe criterion - below 68% of average national wage - the number of employees with a relatively low income is even higher. In 1975, about 3.95 million full-time employees (22.3%) received pay which was below 68% of average national wage, rising to 5.31 million (28.5%) in 1990. Again using the average male wage as the reference point, the number of low-paid employees grew from 5.54 million (31.3%) in 1975 to 7.20 million (38.6%) in 1990.

Table 1: Full-time employees with low pay in Germany (1975-1990))

Source: WSI; based on the employment survey of the Institute for Employment Research ( Institut für Arbeitsmarkt- und Berufsforschung, IAB ).

A WSI evaluation of collective agreements shows that typical low-wage sectors in Germany are to be found in those service industries with a predominately female workforce. For example, in 1995 a porter in a hotel in the Saar region earned a basic gross income of DEM 1,616 per month. A florist earned about DEM 2,137 and a hairdresser about DEM 2,240. In comparison, in 1995 the average basic monthly income (in the starting scale of a middle-range income group) of the 24 most important collective agreements areas was about DEM 2,980.

Table 2: Selected collective agreements with low pay levels (1995)

Source: WSI collective agreements archive 1995

Despite the existence of a relatively large low-wage sector in the German economy, in the current public debate, politicians and economists are increasingly demanding a greater differentiation of wages and incomes to create more jobs and solve unemployment problems. However, the WSI study contains an evaluation of 24 of most important industrial collective agreements, showing that there is already a substantial differentiation of incomes between these sectors. Table 3 gives an overview of the income differentiation within the different income groups.

Table 3: Income levels in a selection of 24 of the most important collective agreements (1995)

Source: WSI collective agreements archive 1995

Notes: (1) "Degree" = All income groups contain a scale of degrees, dependent on length of service. (2) "Wages" = pay for blue-collar workers, "salaries" = pay for white-collar workers, "remuneration" - pay with no distinction between categories of worker.

Commentary

In its Opinion on an equitable wage, the European Commission stated that discriminatory wage practices should be eliminated, and that the pursuit of equitable wages should be viewed as part of the process towards greater economic and social cohesion and an integrated European economy. The Commission concluded that the Community's future in the world economy lay in high productivity and high-quality jobs.

The performance of the German economy is usually seen as being characterised by high wages and high productivity, accompanied by a relatively low differentiation of income levels, compared with other countries. Nevertheless, the WSI study demonstrates that even in Germany there is a significant low-wage sector and that, according to international conventions, an important part of the (full-time) workforce can be classified as "working poor". In particular, many "female" jobs in the services industries are inequitably remunerated. Therefore, the WSI agrees with the European Commission in demanding that the social partners, as well as the government, improve the pay situation of those employees who are at the bottom of the scale.

Thorsten Schulten, Institute for Economics and Social Science (WSI)