European Economy. Economic Papers. Germany's growth performance in the 1990's

Table 3.13: Unemployment share of skills groups (2000)
low (A)
medium
High
no answer low skilled as %
of active pop
(B)
increased
unemployment
risk (A)/(B)
D
27.2%
54.3%
12.7%
5.8%
17%
1.59
F
47.6%
39.3%
13.0%
0.0%
32%
1.50
I
50.2%
41.4%
6.4%
2.0%
45%
1.11
D_E
14.9%
67.2%
14.7%
3.1%
11%
1.40
D_W
35.6%
45.6%
11.2%
7.5%
19%
1.90
Source: Eurostat
The rise in labour market participation experienced in West Germany during the 1980s came to
a halt in the 1990s (Figure 3.14). East Germany, where labour market participation had been
considerably higher under the socialist regime, witnessed a gradual adaptation to West levels.
The participation rate of women in East Germany is, at 71%, still higher than in the West (61%)
although it is slowly declining in the East and increasing in the West. Without the flow of
workers out of the labour market, unemployment rates in East Germany would look even worse.
The same is true with regard to low-skilled workers: less than half of the job losses of this group
between 1991 and 1998 actually translated into an increase of unemployment as a large number
of low-skilled workers (620,000) left the labour force (Reinberg (1999)). The participation rate
of low-skilled workers is very low, at 58% in 1999 (OECD (2001)). Among the larger Member
States only Italy has a lower participation of low-skilled workers, namely 53%.
3.2.2 Wage formation: how flexible can it be?
At the aggregate level, wages in Germany seem to be rather flexible. The extreme wage
increase in the early 1990s related to re-unification was followed by a period of rather sustained
wage moderation. However, the wage structure (i.e. the relation of high to low wages) is
remarkably stable, given the unemployment differentials across regions and skills levels. This
sub-section looks at the structure of wage bargaining to explain the lack of wage differentiation.
Institutional setting
In Germany, sectoral wage negotiations prevail (
Industriegewerkschaftsprinzip
), often at a sub-
national level (covering 
Tarifbezirke
). Negotiations by occupation are the exception. In West
44
ditto.

---

(eastern) Germany 45% (23%) of firms participated in a sectoral collective agreement in 2000,
covering 63% (46%) of workers. These shares have, however, been declining
45
.