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

Table 3.21: Average effective tax rates for taking up a job (principal earner at APW level)
in 1997
Principal earner
From unemployment
to full-time
employment
From unemployment
to part-time
employment
Employed
Employed
Secondary earner
Non-employed
Non-employed
From unemployment
to full-time
employment
From unemployment
to part-time
employment
France
76
69
28
38
Germany
80
115
51
50
Italy
63
84
33
25
UK
72
93
28
20
Source: OECD, Benefit Systems and Work Incentives, 1999
Family and work
One out of five workers in Germany work part-time. The incidence of part-time work is highest
among women (38%), among whom there is also a strong East-west differential: 42% of West
German women in employment work part time and two thirds of them report that they have
chosen part-time for personal and/or family reasons, whereas only 6% would rather take a full
time job if they found one. In East Germany, the incidence of part time among women in
employment is 23%; more than half of them would prefer a full time job. This difference not
only reflects the different labour demand. It sharply raises the issue of availability of full-time
childcare facilities: In East Germany, where full-time childcare is relatively widespread, only
21% of women in part-time report personal and family reasons. The lack of childcare facilities
in West German Länder (available for only 3% of children below the age of 3) is a major
impediment for women’s move from part- to full-time, and probably for female labour market
participation as a whole (the participation rate of East German women is also higher at 71%
compared to 61%).
Skills mismatch and lack of mobility
As mentioned above, the long-term tendency in labour demand is towards more high-skill and
less low-skill jobs. On the supply side, the qualification level of workers has been rising steadily
over the past decades. However, the supply of ever more qualified labour seems to have lost its
dynamism: The educational level of school leavers has been broadly stable for a decade, and the
age group with the highest average qualification are the 35 to 49 year old. Against the backdrop
of demographic change with a reduction of the number of new labour market entrants it is
worrying that, according to the 
Mikrozensus 2000
, the scope of training for the employed
actually decreased by 43% from 1991 to 2000.
51
Those working in short part time jobs and earning less than €325 do not pay social security contributions, but a
person earning €326 has to pay the full rate. Therefore, while approx. 4m people have “€325-jobs”, the number
of people earning between €325 and €670 is only ¼ of this figure. Put differently, in order to increase his net
income by only €3, a worker currently earning €325 would need to have his gross salary increased by €87.
Currently, experiments are being carried out in order to find ways of overcoming this poverty trap through
subsidised social security contributions.

---

In the shorter run, in line with the increased number of vacancies, skills shortages have been
gradually emerging. The average number of vacancies increased steadily from 279,000 in 1993
to 514,000 in 2000 (in 2001 it fell back to 504,000). Over the same time, the number of
unemployed per vacancy roughly halved. Whereas the lack of qualified ICT personnel has
found the largest public attention, skills shortages could be felt in several sectors, in 2000. In the
4
th
quarter of 2000, 15% of firms in West Germany reported that a lack of suitable workers
impeded their activity. This was particularly acute in agriculture (29%), business services
(28%), transport and communication (22%) and consumption related services (21%). Also in
East Germany business and consumption related services registered labour shortages (18% and
14% of firms, respectively), while overall only 6% of East firms reported skills shortages. In a
recent study for the Euro-area, the ECB (2002) reports that educational mismatch (measured as
the variance of the ratio of skills-specific unemployment rates to the total unemployment rate)
increased significantly in Germany and France in the period 1992-2000, while it remained
stable in Italy.
The persisting regional imbalances in labour supply and demand raise the issue of geographical
mobility. Gross internal migration in Germany is much lower than in the UK (and even more so
the US, Table 3.22) and also lower than in France, while Italy has a notoriously low regional
migration rate. Furthermore, the net flow from East to West Germany in 2000 was a mere
61,000 persons
52
, or 0.35% of the East population – not an order of magnitude of which one
could expect a rapid balancing of the unemployment differential. A household’s decision to
move to another region will mainly depend on the expected net gain in disposable income and
the transaction cost of moving. A high level of transfers to equalise the standard of living across
regions (including region to region “Finanzausgleich” as well as individual social transfers) is
certainly a prominent factor explaining low inter-regional migration in Germany. Germany’s
low share of families living in owner occupied houses, and large share of private rented housing
(at 38% and 36% respectively the lowest and the highest in the EU (cf. Maclennan et al (2000))
point on the other hand at relatively low transaction costs. Table 3.22 also shows the share of
employees commuting across regional borders. Commuting partly compensates for the lower
migration with respect to France but is only at half the level of the UK
53
.