Inst

itut

Arb

eit

und

Qua

lifik

atio

n

INET Oxford/OECD Centre for Opportunity and Equality ConferenceGenerating Inclusive Growth, Nuffield College, 8/9 November 2018

Wage Stagnation and Reinvigorating Wage Growth: The German experience

Gerhard Bosch /Thorsten Kalina University Duisburg-Essen, IAQ

Prof. Dr. Gerhard Bosch / Dr. Thorsten KalinaUniversität Duisburg EssenInstitut Arbeit und QualifikationForsthausweg 2, LE, 47057 DuisburgTel: +49 (0)203 / 379-1339; Fax: +49 (0)203 / 379-1809 Email: gerhard.bosch@uni-due.de; www.iaq.uni-due.de

Outline

1. German wage moderation – a European problem?

2. Stagnating ordinary living standards and increasing

income inequality

3. Main drivers of change

4. Conclusions

- Below average wage and unit costs increases in Germany- In combination with declining public investments also below average increase of domestic demand and imports- Increasing German export surpluses (2017 = 7,6% of GDP) contributing to European imbalances - But German exports not very price-elastic: “Overall there is no evidence that wage developments are at the root of the development” (EC 2012: 91)- reducing Germany’s current account surplus lies not solely in wages policy but also in an expansive national fiscal policy with an increase in public investment- “However, Germany is not yet ready to take its financial policy in this direction” (Horn et al. 2017: 20).

1.1. German wage moderation – a European problem?

1.1 Evolution of employee remuneration in the Eurozone and in selected EU member states 2000 -2017

Quelle/ Source:

Hier die Grafik mit ALT-Taste und Maus

positionieren

Hier die Grafik mit ALT-Taste und Maus

positionieren

… Eurozone1 Employee remuneration per hour. Seasonally and working day adjusted. In national currency.

2000q1=100

90

100

110

120

130

140

150

160

170

2000 2002 2004 2006 2008 2010 2012 2014 2016

Finland

Belgium

France

Netherlands Germany

Austria90

100

110

120

130

140

150

160

170

2000 2002 2004 2006 2008 2010 2012 2014 2016

Spain

Italy

Greece

1.2 Increasing imbalances of payments in EU (in billion €)

Source: Albu et al. (2017) IMK Report 128.

IrelandItalyPortugalSpainAustriaBelgium

Germany

NetherlandsGreeceFrance

1.3 Development of domestic demand 2000q1=100 (1)

Source: Albu et al. (2017). IMK Report 128.

Belgium

Finland

France

Netherlands

Germany

Euro zone

- Until 1990: Wages followed GDP growth – no increase in income inequality- After unification until 1995 strong increase of low East German market incomes and pensions- After 1995

- decoupling of GDP and wages- increasing inequality of market wages and household

incomes- stagnating living standards up to the 5th decile

- low wages important driver of increasing inequality ofhousehod incomes

2.1. Stagnating ordinary living standards and increasing income inequality

2.1 Evolution of real hourly wages by decile in West Germany (all dependent employees) – With GDP per hour worked as comparison

Source: Source: Own calculations using the SOEP v32.1; GDP per hour worked, adjusted for prices, for West Germany up to 1991, for Germany as a whole from 1992 onwards: Statistisches Bundesamt, own calculations

80

90

100

110

120

130

140

150

160

170

180

GDP per hour worked

D9

D5

D1

2.2 Hourly gross wage of employees by Deciles1995-2015

Source: Bundesregierung, Armuts- und Reichtumsbericht 2017 (based on SOEP v32)

2.3 Evolution of household real incomes before state redistribution by decile (working-age population 25 to 65 years of age) 1983 – 2014 and per capita GDP (until 1990 West- Germany, after 1990 Germany)

Source: Own calculations using SOEP v32.1; GDP: Statistisches Bundesamt, own calculations.

0

20

40

60

80

100

120

140

160

180GDP per capitaD9D5D1

2.4 Household incomes after state redistribution –Households of older citizens (65 and over) compared with working-age households (25 to 65) - Deciles

Source: SOEP v32.1, own calculations

90

95

100

105

110

115

120

125

130

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

D1 - 65+

D5 - 65+

D9 - 65+

D9 working age

D5 working age

D1 working age

2.5 The low wage risk of dependent employees in households by income bracket (pre state redistribution) 1995 to 2014

Source: SOEP v32.1, own calculations. Low wage risk and household income in the various income brackets relate to the years as listed, not the previous years.

0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bottom

Lower middle

Intermediate middle

Total

Upper middle

Top

3.1 Main drivers of falling income standards

- Erosion of the inclusive wage system:- Privatization of public services (e.g. public transport, telecommunication)- Growth of atypical employment- Erosion of autonomous system of collective bargaining- Deregulation of labor law (Hartz-laws)

- Increasing inequality of working hours- Strengthening of old family model: strong financial incentives to

work short hours- Reduction of progressive income and corporate taxes: increased

financial pressures on the welfare state- Reduction of pension levels (effects will show up over the next 40

years)

3.1 End of pattern agreements

3.2 Declining coverage by collective agreements

Source: Source: WSI Tarifarchiv (based on IAB Establishment Panel data)

3.3 Rate of coverage by collective agreements and share of low-wage work (2014)

Source: Visser 2015, Eurostat, own calculations

Diagramm1

22.48

11.94

15.08

14.76

2.64

5.28

8.81

3.79

24.4

21.26

17.75

22.76

23.56

8.61

23.96

25.46

18.52

19.21

12.03

9.44

18.69

21.56

18.47

14.59

18.19

19.33

adjcov: Adjusted bargaining (or union) coverage rate

share of low wage earners in %

Coverage by collective agreements in %

Correlation: - 0,82

DE

LU

MT

AT

SE

FI

FR

BE

RO

UK

HU

EE

PL

DK

LT

LV

NL

SK

PT

IT

CZ

IE

SI

ES

BG

CY

57.6

59

62.79

98

89

93

98

96

35

11.92

23

23

14.67

84

9.89

15

84.84

24.9

67

80

47.29

40.49

65

77.58

29

45.19

Data

Niedriglohnempfänger als Prozentsatz der gesamten Angestellten (ohne Auszubildenden) nach Geschlecht [earn_ses_pub1s]

Letzte Aktualisierung07.12.16

Exportierte Daten19.02.17

Quelle der DatenEurostat

UNITProzent

SEXInsgesamt

SIZECLAS10 Arbeitnehmer und mehr

GEO/TIME200620102014Niedriglohnempfänger als Prozentsatz der gesamten Angestellten (ohne Auszubildenden) nach Geschlechtadjcov: Adjusted bargaining (or union) coverage rateKorr

Europäische Union (28 Länder):16.9617.15DE22.4857.6-0.82

Europäische Union (27 Länder)16.6916.9317.15LU11.9459

Euroraum (19 Länder)::15.88MT15.0862.79

Euroraum (17 Länder)14.2714.7815.7AT14.7698

Belgien6,82+B34B16:B406.373.79SE2.6489

Bulgarien18.922.0118.19FI5.2893

Tschechische Republik17.0518.1918.69FR8.8198

Dänemark8.318.178.61BE3.7996

Deutschland (bis 1990 früheres Gebiet der BRD)20.322.2422.48RO24.435

Estland23.1923.7622.76UK21.2611.92

Irland21.4120.6621.56HU17.7523

Griechenland15.7312.82:EE22.7623

Spanien13.3714.6614.59PL23.5614.67

Frankreich7.136.088.81DK8.6184

Kroatien:21.35:LT23.969.89

Italien10.2712.369.44LV25.4615

Zypern22.6522.6219.33NL18.5284.84

Lettland30.927.8125.46SK19.2124.9

Litauen29.1227.2423.96PT12.0367

Luxemburg13.1813.0611.94IT9.4480

Ungarn21.8719.5117.75CZ18.6947.29

Malta14.4317.6115.08IE21.5640.49

Niederlande17.7417.4618.52SI18.4765

Österreich14.1915.0214.76ES14.5977.58

Polen24.7224.1623.56BG18.1929

Portugal20.7216.0812.03CY19.3345.19

Rumänien26.8525.8224.4

Slowenien19.2417.1418.47

Slowakei18.319.0319.21

Finnland4.755.855.28

Schweden1.772.512.64

Vereinigtes Königreich21.7722.0621.26

Island11.248.997.54

Norwegen6.487.278.29

Schweiz:11.039.37

Montenegro::27.25

Die ehemalige jugoslawische Republik Mazedonien:28.2525.13

Serbien::22.91

Türkei0.240.40.46

Sonderzeichen:

:nicht verfügbar

Data

adjcov: Adjusted bargaining (or union) coverage rate

Share of low wage earners

Coverage by collective agreements

Korrelation: - 0,82

DE

LU

MT

AT

SE

FI

FR

BE

RO

UK

HU

EE

PL

DK

LT

LV

NL

SK

PT

IT

CZ

IE

SI

ES

BG

CY

3.5 Annual gross working time volumes by income bracket (pre-state-redistribution) – percentage change (working households – Germany as a whole)

Source: Own calculations using the SOEP v32.1. Working households have a head of household between 25 and 65 years of age and income from gainful employment.

1.864

2.667 2.967

3.268 3.433

3.021

1.289

2.126

2.526 2.849

3.209

2.631

-30,9

-20,3

-14,9 -12,8

-6,5

-12,9

-35

-25

-15

-5

5

15

25

35

45

-3.500

-2.500

-1.500

-500

500

1.500

2.500

3.500

4.500

Bottom Lower middle Intermediate middle Upper middle Top Total

1992-1995 2012-2015 Change 1992/95 to 2012/15

3.7 Main drivers of improving income standards

- Introduction of care insurance in the late 1990‘s- New family model: Expansion of child care and all-day schools, paid

parental leave, new working time options (from FT to PT and vice verse) – less part-time penalties – longer hours

- Job miracle in the financial crisis: reduction of working hours not of jobs, recruitment of apprentices even in the crisis

- Introduction of Minimum wage and facilitation of extending collective agreements

- Strong job growth since 2004, especially skilled service jobs

Nominal grow th in contractual hourly pay over two years by deciles 1998 - 2016

Quelle/ Source:

Conclusions

• Growing inequality of market and household incomes• Main drivers:

- Erosion of the inclusive wage system- Increasing inequality in the distribution of working hours

Main policy changes- Reduction of inequality in the primary distribution by

increasing coverage by collective agreements- More equal distribution of working hours across income

classes (also skill question!!) - Abolition of incentives to work short hours linked with

traditional family model- Higher taxation of top earners

Quelle/ Source:

�Wage Stagnation and Reinvigorating Wage Growth: The German experience��Gerhard Bosch /Thorsten Kalina University Duisburg-Essen, IAQ�Outline��1. German wage moderation – a European problem?�2. Stagnating ordinary living standards and increasing income inequality�3. Main drivers of change�4. Conclusions- Below average wage and unit costs increases in Germany�- In combination with declining public investments also below average increase of domestic demand and imports�- Increasing German export surpluses (2017 = 7,6% of GDP) contributing to European imbalances �- But German exports not very price-elastic: “Overall there is no evidence that wage developments are at the root of the development” (EC 2012: 91)�- reducing Germany’s current account surplus lies not solely in wages policy but also in an expansive national fiscal policy with an increase in public investment�- “However, Germany is not yet ready to take its financial policy in this direction” (Horn et al. 2017: 20).1.1 Evolution of employee remuneration in the Eurozone and in selected EU member states 2000 -20171.2 Increasing imbalances of payments in EU (in billion €)1.3 Development of domestic demand 2000q1=100 (1)- Until 1990: Wages followed GDP growth – no increase in income inequality�- After unification until 1995 strong increase of low East German market incomes and pensions�- After 1995 �- decoupling of GDP and wages�- increasing inequality of market wages and household incomes�- stagnating living standards up to the 5th decile��- low wages important driver of increasing inequality of househod incomes2.1 Evolution of real hourly wages by decile in West Germany (all dependent employees) – With GDP per hour worked as comparison2.2 Hourly gross wage of employees by Deciles 1995-20152.3 Evolution of household real incomes before state redistribution by decile (working-age population 25 to 65 years of age) 1983 – 2014 and per capita GDP (until 1990 West- Germany, after 1990 Germany)2.4 Household incomes after state redistribution – Households of older citizens (65 and over) compared with working-age households (25 to 65) - Deciles2.5 The low wage risk of dependent employees in households by income bracket (pre state redistribution) 1995 to 2014�3.1 Main drivers of falling income standards 3.1 End of pattern agreements3.2 Declining coverage by collective agreements3.3 Rate of coverage by collective agreements and share of low-wage work (2014)3.5 Annual gross working time volumes by income bracket (pre-state-redistribution) – percentage change (working households – Germany as a whole)�3.7 Main drivers of improving income standards Nominal growth in contractual hourly pay over two years by deciles 1998 - 2016Conclusions