Insight: The dark side of Germany's jobs miracle | Reuters

Wage restraint and labor market reforms have pushed the German jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive. But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.
Insight: The dark side of Germany's jobs miracle | Reuters

• a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive. But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality. Labor office data show the low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the "job miracle" has not prompted Germans to spend much more than they have in the past. Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former communist east German states.
• Trade unions and employers in Germany traditionally opt for collective wage agreements, arguing that a legal minimum wage could kill jobs, but these agreements only cover slightly more than half the population and can be circumvented
• Critics say Germany's reforms came at a high price as they firmly entrenched the low-wage sector and depressed wages, leading to a two-tier labor market.New categories of low-income, government-subsidized jobs - a concept being considered in Spain - have proven especially problematic. Some economists say they have backfired. They were created to help those with bad job prospects eventually become reintegrated into the regular labor market, but surveys show that for most people, they lead nowhere.
• While wage inequality used to be as low in Germany as in the Nordic countries, it has risen sharply over the past decade. "The poor have clearly lost out to the middle class, more so in Germany than in other countries," said OECD economist Isabell Koske. Depressed wages and job insecurity have also kept a lid on domestic demand, the Achilles heel of the export-dependent German economy, much to the exasperation of its neighbors.
• ILO's Ernst says Germany can only hope that other European countries do not emulate its own wage deflationary policies too closely, as demand will dry up: "If everyone is doing same thing, there won't be anyone left to export to.