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In-Work Poverty in Germany

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In-Work Poverty in Germany EUROPEAN SOCIAL POLICY NETWORK (ESPN) In-work poverty in Germany Walter Hanesch Social Europe EUROPEAN COMMISSION European Social Policy Network (ESPN) ESPN Thematic Report on in-work poverty Germany 2019 Walter Hanesch, University of Applied Sciences Darmstadt Directorate-General for Employment, Social Affairs and Inclusion 2019 The European Social Policy Network (ESPN) was established in July 2014 on the initiative of the European Commission to provide high-quality and timely independent information, advice, analysis and expertise on social policy issues in the European Union and neighbouring countries. The ESPN brings together into a single network the work that used to be carried out by the European Network of Independent Experts on Social Inclusion, the Network for the Analytical Support on the Socio-Economic Impact of Social Protection Reforms (ASISP) and the MISSOC (Mutual Information Systems on Social Protection) secretariat. The ESPN is managed by the Luxembourg Institute of Socio-Economic Research (LISER) and APPLICA, together with the European Social Observatory (OSE). For more information on the ESPN, see: http:ec.europa.eusocialmain.jsp?catId=1135&langId=en Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE This document has been prepared for the European Commission, however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http:www.europa.eu). © European Union, 2019 Reproduction is authorised provided the source is acknowledged Quoting this report: Hanesch, Walter (2019). ESPN Thematic Report on In-work poverty – Germany, European Social Policy Network (ESPN), Brussels: European Commission. In-work poverty Germany Contents SUMMARY/KEY FINDINGS/SUGGESTIONS ........................................................................ 4 1 ANALYSIS OF THE COUNTRY’S POPULATION AT RISK OF IN-WORK POVERTY ................... 4 1.1 Main characteristics of the population at risk of in-work poverty ............................... 4 1.2 The main drivers of in-work poverty and the main challenges for the welfare state ..... 6 2 ANALYSIS OF THE POLICIES IN PLACE......................................................................... 9 2.1 Direct Policies .................................................................................................... 9 2.1.1 Labour policy: regulating non-standard employment ..................................... 9 2.1.2 Minimum wage policy .............................................................................. 10 2.1.3 Labour market policy .............................................................................. 11 2.1.4 Minimum income benefits ........................................................................ 12 2.1.5 In-work benefits ..................................................................................... 13 2.1.6 Child and family benefits ......................................................................... 13 2.1.7 Housing benefits ..................................................................................... 13 2.1.8 Tax policy .............................................................................................. 14 2.2 Indirect Policies ................................................................................................ 14 2.2.1 Early childhood education and care policy .................................................. 14 2.2.2 Parental leave scheme ............................................................................ 15 2.2.3 Housing policy ........................................................................................ 15 3 POLICY DEBATES, PROPOSALS AND REFORMS ON IN-WORK POVERTY AND RECOMMENDATIONS ............................................................................................... 16 3.1 Recent social policy debate on in-work poverty .................................................... 16 3.2 Recommendations ............................................................................................ 17 3.2.1 Regulation of mini-jobs ........................................................................... 17 3.2.2 Tax reform towards individual taxation ...................................................... 17 3.2.3 Reform of child and family benefits ........................................................... 18 3.2.4 Reorientation of activation and the promotion of continuing vocational training .................................................................................................... 18 3.2.5 Further improving reconciliation of work and family life ............................... 18 4 ASSESSING DATA AND INDICATORS ......................................................................... 18 REFERENCES .............................................................................................................. 20 ANNEX ....................................................................................................................... 24 3 In-work poverty Germany Summary/Key findings/Suggestions The evolution of the population at risk of in-work poverty1 (IWP) in Germany shows a mixed picture: in the decade from 2005 to 2015, the IWP rate in Germany doubled, which was the largest increase recorded by any EU member state. However, having peaked in 2014, the IWP rate has started to fall gradually and, at 9.0% in 2017 (compared with the median value in the EU28 of 9.6%), was only 1.3 percentage points higher than in 2012. In 2017, the groups with the highest IWP rates were employed members of households with a low or very low work intensity (37.5%), single parents (22.5%), employed people with the lowest educational attainment (levels 0-2) (21.7%), the self-employed (21.5%), those born in non-EU28 countries (18.6%) and those working on temporary contracts (18.3%). IWP in Germany is the result of a complex interaction of risk factors at individual and household level. The main challenges arise from deficits in labour market participation, high employment and earnings risks for low-skilled workers, the high proportion of non- standard employment, a widening wage dispersion and a large low-wage sector. The incidence of IWP is aggravated by the fact that this situation – especially in households with children – is not short-lived but usually long-lasting. Social policy makes only a limited contribution to alleviating the problem. The regulation of non-standard employment has been rudimentary, and mini-jobs in particular have not yet been reduced. The introduction of a statutory minimum wage in 2015 has up to now hardly reduced low-wage employment. Up to now, those in work have not been a target group for active labour market policy; however, the first steps to improve the promotion of continuing vocational training for low-skilled workers have now been taken. Minimum- income benefits, child and family benefits and housing benefits do little to prevent the occurrence of IWP. The total burden of income tax, social security contributions and the withdrawal of transfers for low-income families in particular provides little monetary incentive for them to take up gainful employment or increase their working hours. However, the massive expansion of daycare facilities for children under 3 and the provision of a well received parental leave scheme have helped to improve the reconciliation of work and family life in the last decade. Permanent in-work benefits do not exist in Germany and temporary in-work benefits in the form of the ‘entry allowance’ are of only marginal importance. There has been no policy debate on poverty in general or IWP in particular n Germany in recent years. Analysis of the causal factors and the contributions of the different policy areas has made it clear that IWP results from different groups of risk factors for which there can be no single, simple solution. The following recommendations on selected aspects of the problem could help to achieve a further reduction in IWP in Germany: the regulation of mini-jobs; the introduction of individual taxation for married couples; a reform of child and family benefits; a reorientation of labour market activation measures and the promotion of continuing vocational training; and further improvements in the reconciliation of work and family life. No country-specific definitions and indicators have been developed and used in the German academic and political debate on IWP. 1 Analysis of the country’s population at risk of in-work poverty 1.1 Main characteristics of the population at risk of in-work poverty During the last decade, the number of employed people and the employment rate have continuously increased in Germany, accompanied by a decline in the number of 1 For ease of reading, in the rest of this report we will refer to the notion ‘at risk of in-work poverty’, and to the indicator that measures it, using the generic term of ’in-work poverty’ (IWP). 4 In-work poverty Germany unemployed people and the unemployment rate. One downside of this German ‘employment miracle’ has been an overall rise in in-work poverty (IWP) in Germany. According to Eurostat and EU-SILC data, the in-work at-risk-of-poverty rate went up between 2012 and 2017 by 1.3
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