The low-wage sector in Germany – Trap or springboard for employees?
Around the turn of the millennium, the number of unemployed people in Germany increased significantly. As a result, the then Federal Government favoured the emergence of a relatively large low-wage sector through various labour market reforms.
Under the direction of Dr Markus M. Grabka, DIW Econ conducted a comprehensive analysis of the structure of the low-wage sector and the associated mobility dynamics based on data from the Socio-Economic Panel (SOEP).
They show that the number of employees in the low-wage sector in Germany has increased by around three million since the mid-1990s to 7.7 million in 2018. This means that more than one fifth (21.7 per cent) of all employees in a primary job received a low wage of less than 11.40 euros gross per hour. Fortunately, since 2015 there have been first signs of a decline in this rate, which may also have been contributed to by the introduction of the statutory minimum wage.
The mobility analyses show that with the reduction of unemployment in Germany, the risk of moving from the low-wage sector into unemployment or inactivity has decreased significantly. At the same time, the stepping stone function of the low-wage sector, i.e. facilitating the transition to a higher-paid job, has become less important compared to the mid-1990s. About half of all those employed in the low-wage sector are still in this wage segment four years later. Switching to the higher wage segment has occurred in about 17 out of 100 cases and switching to higher wage segments in only ten out of 100 cases.
DIW Econ prepared the report for the Bertelsmann Foundation.
Further information and a discussion of possible policy approaches can be found in the full study.
Link to study (3,94 MB)