What is the truth behind Germany's economy?

There has been wage growth in the German economy, but who did this go to?
- Dr Thomas Biegert
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Germany Village Landscape Maxpixel (CC0)

Germany is often portrayed as the economic model to which other countries should aspire. In a recent paper, Dr Thomas Biegert of the Department of Social Policy and his research partner David Brady see much to admire in the German economy, but find the reality is more complex than its favourable reputation suggests.

Comprising 23% of its economy, Germany’s manufacturing sector is envied around the world. Manufacturing supports millions of well-paid, secure and skilled jobs, but at the other end of the employment spectrum, a sizeable and growing underclass works in insecure, poorly-paid conditions, which Dr Biegert describes as ‘precarious’ employment.

Studying data from 1984 to 2013, Dr Biegert found a clear increase in wage inequality, low-paid and temporary employment, against a backdrop of national economic growth and overall rising employment levels: “One of the problems of the German economy is that there has been wage growth over the period of this study, but who did this go to? Not everybody has benefited,” he says.

The researchers found that certain groups are more likely to end up in precarious employment, such as young people, women, or immigrants. Conversely, the labour market is likely to protect older, male, native workers. This creates what Dr Biegert describes as an insider-outsider employment model, maintaining generous wages, benefits, and protection for privileged groups, a situation which has endured throughout the financial austerity era in the past decade.

The rise of precarious work is partly explained by a series of changes to welfare provision, known as the Hartz reforms, at the beginning of the 21st century that are likely to have made precarious employment a better alternative than unemployment benefits for many.

Dr Biegert says: “From one perspective, welfare reforms in Germany have worked well; they have decreased unemployment. But they have also pushed people into precarious employment, creating a larger gap between different groups of workers. From the perspective of those workers, it has been less successful.”

Overall, Dr Biegert stresses there is much to admire in German economy: “Aspects of the German economy that may be worth imitating; a higher level of employment protection than the UK might foster long-term employer-employee relationships, for example.”

But the labour market in Germany tends to help certain groups while neglecting others. Politically, as is often the case, the German government has prioritised the  most powerful groups within society. “You could argue that the insider groups have the loudest voice, so it’s easy for governments to deregulate at the margins, targeting groups that are less able to resist,” Dr Biegert says.

As the gap between worker groups can be huge, the prospect of precarious employment makes Germans understandably fearful of losing their economic status. “Politicians that pledge to safeguard employment protections hold appeal for those who are already on the inside and those workers who would like to join them. But we shouldn’t forget that in Germany’s case when one group benefits, another loses out,” Dr Biegert adds.

Behind the article

The rise of precarious employment in Germany by David Brady and Thomas Biegert was published in Research in the Sociology of Work: Precarious Employment.