by Jacob Funk Kirkegaard, Peterson Institute for International Economics
View full document [pdf]
Germany has the best functioning labor market among large economies in the West. In the eyes of some, however, its success comes with a price. Questions have been raised over whether Germany's labor reforms have lowered living standards, especially for low-income workers, worsening income inequality. Germany has also been accused of selfishly riding a wave of strong foreign demand for German exports. Kirkegaard shows that Germany's recent labor market success—its low unemployment rate, high labor participation rate, and increased productivity—has indeed resulted from the structural labor reforms in the early 2000s. But the expansion of low-wage "mini-jobs"—criticized for allegedly squeezing the low-wage workforce—largely results from their increasing use as second jobs, and labor market success can be achieved at no additional rise in inequality.
Data disclosure: The data underlying this analysis are available here [xlsx].
Policy Brief 14-3: Income Inequality Developments in the Great Recession January 2014
PIIE Briefing 15-2: Raising Lower-Level Wages: When and Why It Makes Economic Sense April 2015
Op-ed: US Companies Pay Well and Do Better February 20, 2015
Working Paper 15-7: The Future of Worldwide Income Distribution April 2015