Germany can show off. At the present time they have one of the lowest unemployment rates in Europe at 4.9% (while Spain hits the record at 24.5%). The figures are as impressive for the youth unemployment rate at 7.8% for Germany whereas Italy’s youth unemployment rate is 42.9% and the Spanish jobless rate of persons under 25 goes up to 53.8%. A decade ago, 10.5% of the Germans were living on the dole. With this in mind it is no surprise that Germany’s export surplus in 2014 will be €100 billion. Not to mention that the biggest financial crisis since WW2 could not take on the German economy. Moreover, McKinsey points out that they anticipate another decade of export-led growth as a result of high demand from emerging markets. Demand in emerging countries keeps up for machine tools, chemicals and cars. Their primary exports partners are the European Union (58.2 percent of total exports), the US (7.0 percent) and China (6.1 percent.) The history of the German economy could sound like a miracle.

The other side of the story is that Germany has the second highest proportion of part time workers (26.2%) after the Netherlands (50%). Moreover, 20% of the German workers are trapped in “low-wage”- jobs. Despite the noncontroversial positive effects of a low unemployment rate the number of the working poor in Germany who are not earning a living wage is rising, and more people are becoming dependent on welfare payments. Germany’s strong exports are growing measurably on behalf of the other EU countries’ competitiveness, leading to criticism of the dumping salary by other neighbouring countries. Moderate wage increases are intensifying the competitiveness and deflation within the Euro zone. Whereas the ECB main objective is to keep the inflation rate close to 2% and trying to prop up the Euro, Germany again, is benefitting from these circumstances, considering the demand for engineering products, chemicals and cars made in Germany is skyrocketing, according to Vollkommer (2014).

“Wunderreform”- Agenda 2010

Gerhard Schröder (former chancellor) wanted to make the labour market more flexible again and established with the Agenda 2010 the creation of the so called “mini-jobs”. Payroll taxes on earnings less than €400 per month were nullified (in detail, the gross salary is identical to the net salary) and the time of benefits was lowered to one year. A lot of low unskilled people were suddenly pulled into work, but as promising as this sounds, the part of mini jobbers who are not occasional workers grew even larger. According to BrandEins, concerned are butchers, printers and even academics. Nonetheless, lower salaries imply less purchasing power and for that purpose a fierce prices competition emerged.

Dumping salaries – An example of slaughter houses in Germany

Back in 2000, Germany had to import meat. By now, the country is one of the export leaders in the meat industry. Nevertheless this success comes at a certain cost – at the expense of the employees. As of now, Germany has the reputation of a low wage country, which has attracted among others, Danish Crown, a meat company, who had in the first quarter of 2013 A subcontractor, Klaus Strabey Dienstleistungs GmbH, in Essen near Oldenburg in the lower Saxony is an example how Danish Crown is outsourcing its production from Denmark. However, only 25 percent of the employees have a permanent contract. The majority of them are working on a temporary basis, like Klaus Straber GmbH. Strabey is paying its workers €0.98 to €1.31 per cut pig. This makes up to a gross salary of €1000 to €1400. Danish Crown, however, pledges that these numbers are not correct.

A slaughterhouse pays approximately €5 per slaughtered pig to the subcontractor – for a reasonable salary it would have to be €2.5 to €3 more. Pigs have an average weight of 110kg, and 88kg are processed into meat and sausages, 1kg in the supermarket would cost (with reasonable salaries) 5.7 cents more per kg. This is a bearable difference for the consumer, unfortunately not at all for the meat industry. At 56 million slaughtered pigs, the differences sum up to €319.2 million according to some calculations of BrandEins Magazin.

You cant’ have the cake and eat it too

The country is taking advantage of the single currency, since a major part of its exports are within the Euro area. Low wages in Germany are increasingly becoming a problem to their neighbouring countries and drag down national demand in the same time. The famous German infrastructure is suffering as a consequence of rigorous fiscal policy. Higher wages would spur domestic demand and could contribute to overall inflation in the Euro area.

Germany is now facing two problems, a dwindling purchasing power and a stagnation of living standards. The country is rich, but its median household asset was estimated in 2013 at €51,400, far behind that of Italy and Greece. Another problem is that fewer people own their house and since the government decided to implement lower interest rates on mortgages, housing prices soared.

Even though Germany is strong from an export point of view, the country faces several difficulties that it needs to tackle in order to avoid to high social differences within the country.

A minimum wage in Germany is needed for the country itself and for its neighboring countries as well.

Illustration photo copyright:

Central Railway Station / Hohenzollern Bridge

Thomas Depenbusch ©2011