Following Germany's Lead to Economic Disaster

Chancellor Gerhard Schroeder's explicit goal was to create a low-pay sector in which the long-term unemployed would find jobs. The lack of minimum wages and the higher pressure on the unemployed caused a severe downward wage trend.  The share of the low-pay sector (less than 9 € per hour) in overall employment strongly increased from 15 % in 1998 to 22 % in 2005 and hasn't fallen since. It is now close to the size of the British low-pay sector but with one difference: without minimum wages, there is no bottom for German wages. Tax cuts and pressure on the poor had their natural consequence: nowhere in the OECD did inequality increase as much over the last ten years as it did in Germany.