OECD urges Germany to address creeping poverty

14 May 14
The German government must do more to tackle poverty, as its past reforms have not been sufficient to achieve sustainable and inclusive growth, the Organisation for Economic Co-operation and Development has warned

By Judith Ugwumadu | 13 May 2014

The German government must do more to tackle poverty, as its past reforms have not been sufficient to achieve sustainable and inclusive growth, the Organisation for Economic Co-operation and Development has warned.

Speaking at the launch of the Economic survey of Germany 2014 in Berlin yesterday, OECD secretary-general Angel Gurría said that poverty in the country was lower than in most of the other 34 OECD countries but the share of low-paying jobs was high and rising. 

‘Our figures show that around 22% of all workers earned less than two thirds of the median income,’ he said. 

The German government has said it plans to introduce a minimum wage between 2015 and the end of 2016 at an initial level of €8.50 an hour. 

The OECD noted: ‘At €8.50 it would amount to about half of the median wage, placing the German minimum wage at a level similar to those of other European countries, such as Belgium, the Netherlands and the United Kingdom, but below France.’  

It also suggested that the minimum wage would affect about 15% of all employees nation-wide and 23% in Eastern Germany. But some commentators have argued that a minimum wage of €8.50 could significantly harm employment prospects for workers who have little experience, are low skilled or confined to certain regions. 

Gurría urged the German government to promote a more inclusive model of growth, based on good wages and equal opportunities in education and to invest more in people skills. 

He pointed out that there should be lower taxes on labour and a reduction in welfare contributions, especially for low-paid workers. 

The report noted that new, higher-quality jobs and better access to the labour market were not only needed to ensure fairness, but also an economic necessity given the ageing German population and projected impacts on long-term growth.  

To offset revenue reductions, Gurría said there should be a fairer tax system that broadened the tax base, by increasing taxes on real estates, based on update property valuations and by phasing out tax expenditures for activities that damage the environment, such as tax breaks for company cars and community allowances. 

Gurría continued: ‘[Germany is] backed by its robust labour market and a strong, innovative manufacturing sector, the country is now set for a broad-based recovery after having passed the pre-crisis peak already in 2011. We project growth to gradually rise to 1.9% this year and 2.3% next year.’

But the OECD noted that slow economic growth would make it harder for Germany to fund public services, notably healthcare, which are likely to be in greater demand in the future.

As a result, Gurría said there should be more focus on additional pension entitlements to reduce future old-age poverty risks. Germany also needed to prioritise spending on growth-enhancing items such as infrastructure and childcare.

He continued: ‘Our experience has shown that reforms are usually enacted in times of crisis, as there may be no other option. However, reform processes should continue in good times.’

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