The Costs of Export Profits

BERLIN (Own report) - A new study on the minimum wage in Germany and the most recent metal industry collective agreements leads to the conclusion that the German elite intends to continue the social dumping and the policy of wage restraint for the maximization of German industrial profits through continuing excessive exports. On the one hand, this strategy is at the expense of other eurozone countries, affected, to a growing extent, by the socio-economic imbalance. On the other, it creates an enormous social gap in Germany. The minimum wage is in relationship to the average income much lower in Germany than in other EU countries, and it has been sinking in real value ever since its introduction in 2015. Due to the dismantling of the welfare state, the risk of sinking into permanent poverty with the loss of employment is also higher in Germany than in any other EU country. The German government is continuing its years-long pursuit of its policy of facilitating export with social dumping - also in the face of, at times, hefty criticism from abroad.


The Lowest Minimum Wages

Germany's elite are still unwilling to give up the policy of social dumping, which, through domestic deterioration, has significantly contributed to a continuation of the German export boom and thereby to the formation of an extreme disequilibrium in the trade balance within the eurozone. This was confirmed by a recently published minimum wage report of the trade union-affiliated Hans Böckler Foundation, which calls Germany's development of the minimum wage one of the EU's worst. According to the study, the officially stipulated EU average minimum wage rose by 4.4 percent, last year; the previous year by around 5 percent. In three EU countries there was no increase in the minimum wage, in Luxemburg, Greece and Germany.[1] The foundation explains that because of the growing inflation within the eurozone, those receiving minimum wages suffered a de facto loss in pay. Germany's €8.84 minimum wage, one of the most productive countries in the eurozone, continues to "lag behind other EU countries," the observers note.[2] In the meantime, the minimum wages not only of Luxemburg (€11.55), but also France (€9.88), the Netherlands (€9.68), Ireland (€9.55), and Belgium (€9.47) have all surpassed their German counterpart. In its relationship to the average wage, Germany's minimum wage is also relatively low; It represents only 47 percent of the median wages in Germany.[3] In France, it is 60 percent, in Portugal and Slovenia 58 percent.

Labor Union Wage Restraint

It cannot be expected that German trade unions will launch an emphatic campaign for a significant increase in the level of German wages. For years, their pursuit of wage restraint, as their unofficial policy, has been flanking the German industry's focus on export. The recent deal reached by the IG Metall labor union in its collective bargaining with the German metal industry in Baden-Wurttemberg will ultimately bring no significant real wage increases for the 3.9 million employees in this export-oriented sector. The deal includes a 4.3% raise in pay for this year - distributed over a 27 month period.[4] It is therefore questionable, whether it will compensate for the growing inflation within this prolonged period of more than two years. An agreement was also reached on raising vacation pay and an additional fixed annual sum of €400.

Beggar Thy Neighbor

Therefore a true revival of domestic demand, with which Germany's extremely high trade surplus can be throttled, is fading further into the future. Using its extremely high trade surplus - estimated at up to seven percent of its Gross Domestic Product (GDP) - which was recorded primarily in relationship to other eurozone countries until the outbreak of the euro crisis, Germany has been able to massively implement debt export and force the deindustrialization of its eurozone competitors. This became possible within the framework of a Beggar-Thy-Neighbor policy, because the common currency made it impossible for the others to devaluate their own currencies to defend themselves from Germany's export offensive. Since the beginning of the euro crisis, numerous EU member countries have repeatedly called on Berlin to raise its wage levels and mitigate the disequilibrium in the trade and transactions balance with more public investments. A few years ago, French politicians called the German export surplus, which is also based on too meager salary increases as "unsustainable."[5]

Great through Personal Deprivation

The German strategy - launched with the SPD-Green coalition government's Agenda 2010, in reaction to the introduction of the euro - using wage and social dumping to "achieve greatness through personal deprivation" to the detriment of its European competitors, is empirically clear in the long-term development of unit labor costs, i.e. the share of wages in the costs of the commodity.[6] In the period between the introduction of the euro and the outbreak of the euro crisis in 2008, the unit labor costs in Germany stagnated, thanks to the Agenda 2010 and Hartz IV, while in the rest of the eurozone they increased on the average by approx. 20 percent. Even after the outbreak of the crisis and the long-term austerity policy in many EU crisis-ridden countries, provoking to a massive slump in national wage levels, Germany remained one of Europe's countries with the lowest unit labor costs. Since introduction of the euro, the unit labor costs have increased 17 percent in Germany; the EU average is 28 percent - in spite of slumps caused since 2009 by austerity.

"Conscious Political Decisions"

This corresponds to the fact that Germany's social structure - the long-time "export world champion" - is characterized by a major chasm between poor and rich and a very high risk of sinking into poverty. In Germany, for example, the risk of sinking permanently into poverty with the loss of employment is the highest in the EU. With around 70 percent, according to the EU's most recent statistics, Germany is far ahead of East European countries such as Lithuania (60 percent) and Latvia (55 percent). France and Finland, however have the lowest risk of poverty through unemployment - with less than 40 percent.[7] Critics see the high risk of poverty as a direct consequence of the dismantling of Germany's welfare state and the Hartz IV reforms, with which employees are de facto "forced" to take poorly paid jobs. These measures implemented by the SPD-Green coalition government "were conscious political decisions."

Massive Social Chasm

In the meantime, Germany's social chasm has reached dimensions similar to those in the United States. The upper 10 percent of German society owns more than half of Germany's total net assets, while the bottom half of the income pyramid is virtually penniless - the lower 50 percent possesses only one percent of the country's wealth.[8] In 2015, low wage employees were earned, in real terms, less than in the mid-1990s. Simultaneously, the German social structure is erecting ever higher barriers to social mobility, and resembling an aristocracy. For example, around two-thirds of the wealthy citizens of Germany, have not "earned," but inherited their wealth. The income and educational opportunities in the Federal Republic of Germany is, to a very high degree, dependent on social origins - around 70 percent of the children of university graduates can attend the university, as opposed to only 20 percent of working class children.[9] The United States is the only other country in the industrialized world with such a pronounced social chasm. The German state's retreat from its share of social housing construction - going hand-in-hand with the real estate boom of the past few years - has led to an explosion in homelessness. In Germany, the number of people without an apartment has grown to 860,000. Since 2014, the number of Germany's homeless has skyrocketed 150 percent.[10]


[1] Dominik Reintjes: Europas Mindestlöhne steigen - der deutsche nicht. 28.02.2018.

[2] Mindestlohn in Deutschland bleibt hinter anderen EU-Staaten zurück. 28.02.2018.

[3] David Zajonz: Mindestlohn - noch Luft nach oben? 28.02.2018.

[4] Leopold Stefan: Deutsche Metaller setzten Lohnspirale in Gang. 06.02.2018.

[5] Rainer Hank: Druck auf den Musterschüler Deutschland. 20.03.2010.

[6] Till van Treeck: Löhne und Lohnstückkosten im Euroraum. 09.06.2017.

[7] Ben Knight: Unemployed in Germany have greatest risk of poverty in the EU. 27.02.2018.

[8] Regierung warnt vor Folgen einer sozialen Spaltung in Deutschland. 23.03.2017.

[9] Marcel Fratzscher: Sozialer Sprengstoff. 29.09.2017.

[10] Germany: 150 percent rise in number of homeless since 2014. 14.11.2017.