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ECONOMY

Working poor undermine Germany’s prosperous image

Despite Germany’s prosperous image, the country faces a widening income gap and growing outrage over “breadline wages” for the working poor, reports AFP’s Arnaud Bouvier.

Published: 9 March 2008 10:56 CET

Germany’s image is often of a prosperous country with autobahns chock-a-block with Mercedes and BMW cars. But for more than one million Germans, wages are so low they cannot get by without welfare.

The fate of the country’s 3.6 million unemployed (8.6 percent of the population) often figures prominently among the concerns of politicians.

But that of the working poor – a hairdresser earning €3 ($4.50) an hour, or a security guard earning €748 ($1,137) per month before tax – has long been ignored.

According to the federal employment agency, 1.2 million employees – half of them working full time – currently also qualify for welfare. In 2005, there were 880,000 of them.

Recently, amid a heated national debate about the pros and cons of introducing a national minimum wage, the popular press has started to decry the “breadline wages” paid to cleaners, shop workers or chambermaids.

But the working poor spans many different, often unexpected, professions and social groups, according to Karl Brenke, a sociologist and economist at the Institute for Economic Research (DIW).

“On the one hand there are family men, well integrated into the labour market, who earn about €9 ($13.60) an hour,” but whose income is boosted by government child support payments, he said.

“On the other hand, there are people in and out of work, who often combine unemployment pay with part time jobs,” mostly for very low wages, he added.

Many of these working poor live in the former communist eastern Germany, the country’s poorer region where social inequality runs rife.

According to a study released this week by the DIW, just over a quarter of all Germans now belong to the poor – those earning less than 70 percent of the yearly median wage of €16,000. In 2000, these accounted for just 18.9 percent of the working age population.

According to an OECD study, the gap between rich and poor grew more in Germany between 1995 and 2005 than nearly everywhere else in Europe. Only Poland and Hungary performed worse.

“We have very low wages in Germany. Compared to abroad, we are no longer where we thought we stood,” Labour Minister Olaf Scholz said recently.

More than 15 percent of workers earn less than €7.50 gross per hour, according to the minister, a Social Democrat, who favours a national minimum wage for all in a country where such deals are currently limited to certain regions or to specific job sectors.

Employers as well as many inside Chancellor Angela Merkel’s left-right coalition of conservative Christian Democrats and the centre-left Social Democrats, oppose such a plan for fear it could undermine job creation or even boost unemployment.

It is better, they suggest, to top up the wages of the working poor with government welfare than pay out more unemployment money.

Last month, the government announced it was multiplying by 2.5 the number of people entitled to child support.

Such a move, the tabloid-style Bild newspaper suggested, might actually backfire because it could prompt people on welfare to stay at home rather than go out to seek work.

Bild used the example of a family with two children where both parents worked, earning €1,500 net per month. If they didn’t work and applied for welfare, including a housing allowance, they would earn … €1,501 per month, the paper said.

“Anyone who works in these circumstances is an idiot,” the newspaper concluded.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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