As the head of the economics think tank DIW Berlin, Marcel Fratzcher, pointed out recently in the Washington Post, more than 20% of German workers work part-time or have temporary work contracts – twice the rate as in France. These workers often earn little more than the minimum wage of €8.84 an hour. What’s more, according to Fratzcher, workers with the lowest wages are worse off and have lower real wages today than in 2000.
Having explored these contradictions earlier this year in a working paper, France Stratégie recently invited Werner Eichhorst, the director of Labor Policy Europe at the Institute of Labor Economics (IZA), to partake in a debate on the strengths and weaknesses of the German labour market and the challenges it faces.
A turnabout with a price
As distant as it seems today, following reunification in Germany in 1990, the country suffered from high unemployment, with low-skilled workers, older citizens and women largely excluded from the labour market. By the end of the millennium, it was being written off as the “sick man of Europe”.
Along with a shift in collective bargaining to the plant level, the so-called Hartz plan of the early 2000s, which was part of the Agenda 2010 series of reforms, contributed to putting an end to these doldrums. It resulted in stable employment growth both throughout the 2007-08 financial crisis and in its wake.
In effect, according to the OECD, the employment rate increased from just above 65% of the working-age population in 2000 to slightly above 75% by 2014. France, by comparison, has stayed pretty much even, stalling at around a meagre 64%.
Germany achieved this by doing two things, Eichhorst detailed. One, while it maintained its legal framework for permanent contracts, it decentralized collective bargaining to the company and plant levels (incidentally, France has also increasingly moved towards this approach over the past fifteen years [see this France Stratégie working paper for a comparison of collective bargaining in the two countries], with Emmanuel Macron making it a central plank of the current reform of the French labour code). This led to increased internal flexibility through the use of opening clauses to negotiate more flexible agreements for wages and working conditions.
Two, it boosted atypical employment through measures such as deregulating temping (e.g. removing restrictions like limits on assignments) and fostering so-called minijobs by making earnings from marginal part-time work free of taxes up to €450 per month. These jobs have become a common way for many married women to supplement household income.
For Arnaud Lechevalier, associate professor of economic sociology at the Pantheon-Sorbonne University in Paris, the changes in what he calls the gendered employment regime have been central to the transformation of the German job market in the past decade and a half. Indeed, according to the OECD, the rate of employment for women shot up to 70.8% in 2016 from 58.8% in 2002. In comparison, while the rate in France in 2002 was similar at 55.8%, by 2016 it had risen only to 61.4%.
But what is the proportion of these women working part-time? Eurostat puts the figure at just under 50% in 2015, compared to about 10% of men. This is significantly higher than in France, where only 30% of women work part-time.
A new social model?
Odile Chagny, an economist at the Institute for Economic and Social Research (IRES), raised the question of a new German social model, with high employment at the price of high flexibility. A central aspect of this is a process of dualization, where there is increased internal flexibility with what she calls “organized decentralization of insiders” and at the same time increased external flexibility in the form of a rising level of atypical work at the margins of the system. She stressed that atypical work complements rather than replaces standard work.
In terms of wages, though they were depressed across the country throughout the 2000s, there has been on average a slight increase over the past seven years. Not surprisingly, they remain lower in the former East Germany. Despite the gradual rise in wages, the number of low-pay workers has continued to go up. To put this in perspective, according to Eurostat, the percentage of low-income workers in Germany rose to 22.5% in 2014 from an already high 20.3% in 2006. This is compared to an increase to a mere 8.8% in France in 2014 from 7.1% in 2006.
Eichhorst cites a 2010 study by Florian Lehmer and Kerstin Ziegler of Germany’s Institute for Employment Research (IAB) demonstrating the limited chances for those in temporary employment to transition to permanent jobs. What’s more, there is a pervasive wage gap between in-house employees in manufacturing and temp workers doing similar jobs.
Criticism of the swelling numbers of precarious workers has grown in recent years, leading to the introduction of a minimum wage in January 2015 and the re-regulation of temping in April 2017. The latter puts a cap of 18 months for temp agency assignments and provides temporary workers with pay equal to in-house workers after nine months.
Aside from temp workers, Eichhorst noted there are limited possibilities overall for the development of low-skilled workers’ jobs in the service and manufacturing sectors. At the same time, there is higher demand for highly qualified workers.
A German participant in the debate pointed out the French model, with unemployment hovering around 10%, can’t be a bellwether for the EU. That said, Eichhorst highlighted the need to take measures such as expanding universal social insurance to address the precarity of many self-employed and independent workers in Germany.
He also pointed to the need to encourage young people to pursue post-secondary education and acquire much sought-after skills in a globalised economy and, more generally, extend life-long learning, not to mention work to integrate into the labour market the large influx of refugees the country has seen in recent years.