The Poor Get Poorer Wage Gap Widening Quickly in Germany

According to a new study released by the Geneva-based International Labour Office (ILO), wage inequality has risen faster in Germany than in any other Western country.

The gap between Germany's highest and lowest earners has grown considerably, according to new data published Tuesday evening by the International Labour Office (ILO). Among European countries, only Poland has shown a sharper divergence in wages.

The study also showed increasing wage inequality in the USA, Canada, and Australia since the mid-nineties. The biggest increase was seen in Argentina, with China and Thailand not too far behind. France, Austria, Brazil, and Indonesia, on the other hand, have all seen their wage gaps shrink -- though the last two countries still have some of the most unequal wage distributions in the world. The wage gap in Indonesia, for instance, is still four times as high as in Germany.

As average wages in Germany have failed to keep pace with economic growth, inequality has risen. Between 2001 and 2007, real wages only inched up an average of .51 percent a year in Germany, which posted one of the weakest showings. In China and Russia, by contrast, real wages posted an average annual increase of 13 percent and 14 percent respectively.

The future looks gloomier still for German wage-earners. The ILO expects global wages to rise 1.7 percent in 2008 and 1.1 percent in 2009. In the industrialized world, however, the ILO forecast is for a 0.8 percent increase this year and a contraction of 0.5 percent next year. The report suggests that wage cuts in the industrialized world will be "painful" and lead to increasing "social tension."

Low Wages for Workers, Low Costs for Employers

The flip-side to Germany's paltry wage growth is that the cost of labor here has sunk relative to other countries. According to a study from the Macroeconomic Policy Institute (IMK), an affiliate of the union-friendly Hans Böckler foundation, Germany currently ranks 8th in the EU for labor costs. That's still slightly above average, but employing Germans remains a cheaper proposition than employing workers in Scandinavia, France, or the Benelux countries.

Labor costs in Germany's private sector average €28 an hour after taxes and other costs are added. The average across Europe's common currency zone is €26 an hour.

With such a skilled and relatively under-paid workforce, one might imagine that Germany would be in a strong competitive position. Under normal circumstances, low wages would be a boon for Germany's export-driven economy. Given the economic earthquake brought on by the financial crisis, however, Germany's low wages might become a liability. According to IMK head Adolf Horn, wage contraction in Germany will only "deepen the crisis," since consumers can only spend as much as they earn. With consumer demand plummeting across the world, countries with high wages will have an easier time weathering the storm.

cpg -- with wire reports