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According to a study, the low-wage sector in Germany has shrunk significantly in recent years. In 2022, only one in six employees (15.2 percent) worked in this area, as the German Institute for Economic Research (DIW) announced on Wednesday in its study.

In 2007 the proportion was 23.5 percent, in 1996 it was around 16 percent. “The proportion of employees in the low-wage sector has fallen to a low of the last 25 years,” said study author Markus Grabka. Anyone who receives less than two thirds of the average gross hourly wage receives a low wage. In 2021, this value was 13 euros per hour (click here for the DIW evaluation).

The DIW sees one of the reasons for the decline in the introduction of the minimum wage in 2015 and its gradual increase. In October 2022 it was raised to twelve euros. "But the unions' changed wage policy, which increasingly relies on minimum payments for lower wage groups, also has a positive effect on the low-wage sector," said Grabka.

Income spread continues to increase

According to the information, gross hourly wages increased by 16.5 percent between 1995 and 2021, adjusted for inflation. In the lowest wage decile – the ten percent of employees with the lowest wages – they have risen particularly sharply since 2013. As a result, the low-wage sector has shrunk significantly. Despite the overall positive development, growth in the lowest wage decile has been the lowest since 1995 at around six percent. For comparison: In the top four deciles, wages increased by around 20 percent. In recent years, however, inequality has fallen and is now as low as it was at the beginning of the noughties.

At the same time, the spread of income (i.e. salaries from dependent employment and other income) increased. While the ten percent of the lowest incomes only increased by four percent, the top ten percent achieved an increase of 50 percent. “Wages continue to be the most important source of income for private households in Germany,” says DIW expert Grabka. “But of course other sources of income also count here, such as retirement income, state transfers and other income components.” Many rich people, for example, earn income not only from paid work, but also from capital and assets.

Nevertheless, the inequality of household net income is rather low in international comparison. The Gini coefficient used for this is 0.3 in Germany. The average for the OECD industrialized countries is slightly higher at 0.31. In order to combat inequality, “among other things, there is a need for improved integration of immigrants into the labor market and more targeted qualification of young adults without a vocational qualification,” advise the DIW researchers.

beb/Reuters