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

Table 3.20: Net replacement rates depending on family type and earnings
APW level
66.7% of APW level
Single
Couple, 2 children
Single
Couple, 2 children
1st month 60th month 1st month 60th month 1st month 60th month 1st month 60th month
France
71
38
74
50
83
55
86
60
Germany
60
54
74
52
69
75
74
61
Italy
36
28
54
62
36
39
52
75
United
Kingdom
50
50
64
73
73
73
83
95
Source: OECD, Benefit Systems and Work Incentives, 1999
50
In the UK, the Working Families Tax Credit and in France, the 
Prime pour l’emploi
. These measures differ
greatly with respect to the degree of targeting and the maximum amount per capita, but both can be seen as a
contribution towards increasing work incentives, in particular for low-wage earners.

---

Table 3.21 presents the average effective tax rate (AETR) for couples at the average wage level.
The AETR indicates the combined effect of taxation and benefit withdrawal on the gross wage
when moving from unemployment to employment. Germany has the highest AETR among the
four largest Member States for all categories. If, for example, the principal earner whose partner
is not employed takes up a full time job, he loses 80% of the change in gross income (column
1). In a situation where even more than the additional income is “taxed away”, there is virtually
no economic incentive for the principal earner to take up a part time job, and also the secondary
earner finds 50% or more taxed away when taking up a job. The high marginal and average
taxation of secondary earners bears, in particular, the risk of discouraging women from
participating in the labour market. For part time work, social security contributions are charged
from a threshold of €325, creating a poverty trap in the income area above the threshold
51
.