In few countries of the European Union as many people work in the low-wage sector as in Germany.

Every fifth employee in Germany is one of them.

Economics minister Robert Habeck recently criticized the FAS for saying that Germany had become a “low-wage country” in the meat industry.

This presents a rather bleak picture of the world's fourth largest economy.

How can it be that so many do not participate in all the prosperity that people in Germany have achieved, even though they make a contribution?

Alexander Wulfers

Editor in the business department.

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What the state and business have done so far to improve the situation is apparently not working. The proportion of low-wage earners in the working population has stagnated for years. This includes those who earn less than 12.27 euros an hour. According to the Federal Statistical Office, their absolute number, 7.8 million, has fallen slightly since 2018, but this is mainly due to the fact that many of those affected received short-time work benefits due to the corona restrictions and were therefore not counted. There was a higher proportion of low-wage earners in 2018 only in the Baltic States, Poland and Bulgaria. Women, young people, East Germans, foreigners and Germans with a migration background are particularly affected. The highest proportion of low wages is found in agriculture,in the hospitality industry and in "other economic services", such as security or cleaning staff.

Many could earn more

Economist Simon Jäger from the Massachusetts Institute of Technology is looking for a way out of stagnation. To this end, he takes up an old idea of ​​economics: that labor markets rarely exist under perfect competitive conditions and that the market power of employers plays an important role. Jäger and his co-authors asked themselves: Do employees even know what their alternatives to their current job are and what they could earn elsewhere? With the help of detailed labor market data and a representative survey, the economists were able to show that this is often not the case in Germany: “We can demonstrate an anchor effect, a phenomenon that is known from psychology and behavioral economics in areas other than the labor market. Especially in companies in the low-wage sector, we see a high concentration of peoplewho underestimate what they can earn elsewhere. This is then a kind of poverty trap. Workers are stuck in jobs they might not be stuck in if they knew what kind of wages are being paid elsewhere. "

Jäger sees three reasons why it is possible that so many people know so little about their own industry: “On the one hand, employees themselves may not have much incentive to disclose their own salary. In Germany in particular, there are certain taboos about talking about it. ”Secondly, although companies have an external incentive to publicize their high salaries, they often do not do so in order to preserve internal salary structures. A third factor may be the decrease in collective bargaining coverage in Germany, Jäger suspects. “Over the past three decades, the proportion of jobs in which collective agreements regulate wages has decreased. Collective agreements create a certain transparency. I then know what is paid in my industry. "

Jäger emphasizes that the world is not monocausal.

Nevertheless, he believes his findings could make an important contribution to explaining why there is a large low-wage sector in Germany.

The economists go one step further: they calculate how many people in the low-wage sector could earn more elsewhere, and come to the conclusion that around 40 percent of low-wage jobs would no longer be viable in their current form if employees knew better about alternatives .