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Policy Brief 14-1

Making Labor Market Reforms Work for Everyone: Lessons from Germany

by Jacob Funk Kirkegaard, Peterson Institute for International Economics

January 2014

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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

Working Paper 15-10: Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account June 2015

PIIE Briefing 15-2: Raising Lower-Level Wages: When and Why It Makes Economic Sense April 2015

Working Paper 15-7: The Future of Worldwide Income Distribution April 2015

Op-ed: US Companies Pay Well and Do Better February 20, 2015

Op-ed: The Inequality Debate Avoids Asking Who Is Harmed August 5, 2014

Book: Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality? January 2008