The topic of increasing differences in income has become a constant lately. By now numerous studies have shown that this is not just a figment of imagination, but in fact true. Some might be surprised, though, that the increasing globalization is, not in Germany in any case, not the culprit.

Here are some of the results of a study done by the Bertelsmann Foundation in cooperation with the ifo-institute:

Over the last 30 years, more and more companies have left behind the strict one-glove-fits-everything country-wide contracts with the unions. Participation is down from 60% during the late eighties, to 35% in 2010. As a result, only 62% of all employees are now covered by such contracts, as opposed to the 82% of thirty years ago (at the time the statistics only include West-German employees). As a result, salaries for similar jobs within the same industry vary more and more. It’s not entirely surprising that the lack of such collective contracts often lead to less pay overall. Since 1996, that dynamic has become even stronger. However, in only 20% of all cases, the often cited factors like age, education, gender or East Germany / West Germany differences even came into play.

The common and all too simple explanation that the increase in global trade and closer international cooperation on an economical level led to more competition was not exactly refuted by the study. However, it turned out that the international competition, especially in manufacturing and trade, explains only about 15% of the effect – far less than in generally assumed. Hence, protectionist trade measures would not stop the development, even less because the difference between high and low incomes are growing even faster in Germany than in other countries like the United States or the United Kingdom. In short, the common explanations, often used by political parties for their own purposes fall way short of hitting the mark. As a result, their attempts to solve the problem fall equally short.

At the same time, it has become common to compare the top 10% earners with the bottom 10%. For this, we have solid data: in the 1980, the top ten percent earner about five times as much as the bottom ten percent. Today, the factor is seven.

One cause for the growing difference is no doubt that high level positions for managers or academic specialists, which traditionally are not covered by collective contracts, have grown much faster than those of trained workers, and semi-skilled workers. It is also no secret that since the reform of the labor market und Chancellor Gerhard Schröder (executed by Peter Hartz), the low-wage sector has grown significantly. Much of the success in lowering unemployment in part is based on many more new jobs becoming available, mainly in the low-wage area. The recent debate about minimum wages, leading to the new minimum wage law, has been the natural consequence of this development. While the new flexibility of the workers outside the collective contracts has led to more jobs, those mainly were low-wage jobs. Between 2006 and 2010 the Bertelmann study found an increase from 18.7% to 30.6%.

The study looked at full-time jobs of similar requirements and backgrounds. As bottom line, it lists that in 43% of all cases, the cause of differences in pay, the reason is the dwindling influence of collective contracts.

The authors are asking for increased effort for finding a good balance between getting people into jobs and subsidies. Even not with the minimum wage law in effect, there is still much room for improvement. To quote Bertelsmann Chairman Aart De Geus, „Long-term unemployment and the difficulty of getting out of atypical employment need to be address, or they will continue to drive social problems.“