Millions Left Behind in Boom: The High Cost of Germany's Economic Success

Countries around the world envy Germany's economic success and look up to it as a role model. But a closer look reveals a much bleaker picture. Only a few are benefiting from the boom, while stagnant wages and precarious employment conditions are making it difficult for millions to make ends meet. By SPIEGEL Staff

Photo Gallery: Germany's Broken Promise of Prosperity for All Photos
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What a year it's been for carmaker Audi and its employees, a year marked by the biggest profits in company history, a bonus in the millions for its chairman and handsome bonuses for many employees -- though little to nothing for those at the very bottom of the pay scale.

Technically speaking, Nadja Klöden isn't even at the very bottom of the hierarchy at Audi, which is based in Ingolstadt, near Munich. She's on the sidelines, yet also in the thick of things. The 28-year-old, who studied business management, works as a project assistant in administration. But her employer is BFFT, a service provider that organizes parts distribution among the Volkwagen Group's subsidiaries, which include Audi. That's why Klöden earns €800 ($1050) less than comparable Audi employees for the same 40-hour work week. In other words, although she contributes to the success of the company, she doesn't directly benefit from it. She receives neither an Audi-level salary nor any bonus whatsoever.

Helen Kozilek is in a similar situation. The 26-year-old works full-time on the assembly line at Audi, but the carmaker doesn't pay her wages. Instead, she is paid by Tuja, a temporary-employment agency and subsidiary of the Swiss temp giant Adecco. Compared with Klöden, however, Kozilek can consider herself a higher earner. The hourly rate for temporary workers in her salary group is normally about €10. But IG Metall, Germany's leading metal workers' union, has signed a wage agreement with Adecco so that Kozilek benefits from the €16 rate negotiated by the union. Still, Kozilek doesn't receive a bonus.

Franz Wolff, on the other hand, is sitting pretty. He has been working in maintenance at Audi's car painting division in Ingolstadt for the last 32 years. Wolff has a 35-hour work week and earns a gross salary of €3,300 a month, which is based on an industry-wide multi-employer agreement. Through an in-house wage agreement between the works council (the body that represents the interests of workers) and management, the 57-year-old trained auto mechanic also receives profit-sharing payments. This year, Audi will pay Wolff a bonus of €10,000. The average bonus at Audi is €8,251 -- a record. Audi values Wolff's contribution to its success -- and it provides him with a share of it.

Audi CEO Rupert Stadler's salary was also probably record-breaking, climbing 73 percent last year to reach €7.6 million.

One company. Four employees. Four worlds.

Broken Promises

"Prosperity for all" was once the credo of Ludwig Erhard, the first economics minister of postwar Germany. This promise shaped the country for decades and set it apart from many other economies. But how much is this promise still worth today?

The working world is disintegrating. On the one side are managers, specialists and members of the core workforce, who benefit from the fact that well-trained workers are scarce. On the other side is the reserve pool of workers who can be used as needed and then let go -- as contract workers or through special-order contracts, part-time work or temporary jobs. Many of these people work outside the provisions of collective bargaining agreements.

Labor-market experts view this increasing flexibility as the price of success, a necessary evil that made the rise of the German economy -- from "the sick man of Europe" to the Continent's economic paragon -- possible in the first place.

In fact, the German economy is in better shape than ever. Companies are reporting record profits, the size of the working population reached a new peak in 2011 and, according to Germany's Federal Employment Agency, the ranks of the unemployed have shrunk to only 3 million. In March, the country had an unemployment rate of just 7.2 percent.

Some companies are allowing their employees to benefit from the economic upswing through profit-sharing models. One of them is Sedus Stoll, a mid-sized maker of office furniture in the southwestern German town of Dogern, which has allowed its employees to share in company profits for the last 60 years. The aim is to ensure that the 950 employees "identify with the company" and learn to think for themselves even though they are part of a larger organization, says Carl-Heinz Osten, the company's chief financial officer.

A portion is paid out directly, but most of the money goes into the company's pension plan. Herbert Ebner, the chairman of the works council, says that, "in good times," employees have even taken home the equivalent of 15 or 16 monthly salaries each year.

Still, such ideal conditions are rare. Contrary to what the headlines about record bonuses in the automotive and chemical industries would suggest, only few employees benefit from them, as only 9 percent of German companies have profit-sharing arrangements with employees.

The majority of workers feel very little of what the Economist has dubbed "Germany's economic miracle." For decades, they have had to settle for falling or stagnating real wages, and wages and salaries have been declining for many years as a share of aggregate national income. "In no other European country has social inequality grown as strongly as in Germany," says Gerhard Bosche, the specialist in industrial sociology who heads the Institute for Work, Skills and Training (IAQ) at the University of Duisburg-Essen.

Unions in a Pinch

The ongoing collective bargaining round won't fundamentally alter any of this. Ver.di, the services sector trade union, achieved its best outcome in a long time in labor negotiations for municipal and federal public-sector workers. Nevertheless, Ver.di Chairman Frank Bsirske was unable to push through the desired "social component," a minimum monthly increase of €200 in the lower salary groups.

The powerful IG Metall is currently fighting to secure its members a 6.5 percent wage increase. In recent weeks, the third round of negotiations failed, and now temporary strikes and possibly a tough labor dispute could follow.

While skilled workers in unions can expect to see increases, the prospects are grim for those at the lower end of the pay scale. Employer representatives have made it clear that they will resist IG Metall's demand to be given more of a say in the use of contract workers and employees hired through special-order contracts.

The unions face a dilemma. They are poorly represented among the employees in precarious circumstances, who would actually need their help the most. With their higher-earning core clientele, however, they face competition from new types of niche unions, which are promising special conditions to privileged professional groups, such as train drivers or air traffic controllers. It is one of the "dark sides of the boom," says labor sociologist Bosch, that most low-wage earners are not getting "a fair share" of Germany's economic success.

A Fracturing Society

It's a paradox: At a time when the economic elites in the United States and Great Britain are turning to Germany's recipes for industrial success as role models, the social structure in Germany is increasingly moving in the direction of a three-class society. This is a fundamental shift for a social market economy whose policies have long been aimed at ensuring that the country's prosperity is fairly distributed to all echelons of society. That system now appears to be eroding fast.

These days, it is executives, with their compensation skyrocketing into the millions, who are at the top. The second tier consists of the well-trained and reasonably well-paid legions of white-collar and skilled workers in modern information and industrial societies. Bringing up the rear are professional groups that were once considered part of the core of the traditional working world: salespeople, cooks, waiters and teachers, for example, who often earn less now than they did a decade ago.

In his inaugural speech, Germany's new president, Joachim Gauck, praised his country for "bringing together social justice, participation and opportunities for advancement." But Germans, the president warned, should not accept "people having the impression that advancement is out of their reach despite their every endeavor."

But this is precisely the case now, and, as a result, the old questions of wealth distribution are being asked once again. How can we overcome the gap between rich and poor? How can all employees share in the growing prosperity? And, most of all, what roles should politicians and the parties to collective bargaining agreements play in the process?

It isn't just the long-term unemployed who feel marginalized, but increasingly people who work in industries with narrow profit margins, or in which wages are a determining factor in competition. There are also those who work in the public sector, where there are often few opportunities for career advancement.

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1. Tunnel vision
tnt_ynot 05/04/2012
The rest of Europe is going to hell and the FAZ sees Germany as leaving people behind. Here is what I call leaving people behind: Unemployment Spain 24% tendency rising Greece 18% " Ireland 14% " France 10% " Germany 7% tendency stable to declining Taking a look at the other countrys" youth unemployment levels will make a grown man cry. Germany's makes you wonder what good planet you are on The most important goals for Germany has been to remain competitive, throttle debt, squash unemployment and if possible hold Europe together. That is being accomplished at levels not seen for decades. It is the other parts of the EU that are not only leaving their citizens behind but also ruining their future. Anthony http://euro-meltdown.blogspot.com
2.
KhanZubair 05/06/2012
Very true it is. Each day adding to miseries of salaried and jobless people. If some one can meet both ends feels happy to live on. Enjoyment or some extra spending seems to be stories of the past. How long it will continue is doubtful. limits of patience also have borders. Hope those who matter can perceive it.
3. What could be saved without injustice
Inglenda2 05/07/2012
There are many ways in which the extreme differences between lower and higher income groups could be placed on a fairer basis. Some are so simple that they are completely overseen. The biggest problem however, is that those members of the community, who are in a position to change the situation, are the very beneficiaries of the unjust structural systems within society. The trade unions too, are also not free from causing a widening between the smallest and excessive earnings. To claim a percentage increase in income for workers, rather than one with fixed rates, automatically provides the better paid employees with a greater financial rise than their low paid colleagues. While it can be observed, that the majority of retired persons have suffered a 20% loss of buying power over the last 10 years, there are some, who have a net income which is still much higher than the gross wage of many full time workers. Can it really be just for country to pay one person more for doing nothing, than another receives for working all day? Of course the older people of today - some started work at 14 years of age and worked until they were 65 – cannot be compared with newer generations, of whom a number are still studying at the age of 34 and cannot therefore ever play a responsible part in financing future pensions.. There would however be the possibility of capping the state paid rate of pension to the level of an average workers income. The surplus therewith created then being shared among lower rated pensioners without undue burden on younger tax-payers. Such changes are unlikely to happen of course, especially in a society in which egoisms is part of education, but in theory the possibility is given.
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