Berlin Moves To Counter Wage Dumping

On Wednesday, the German cabinet set up a task force in an effort to close the loopholes that allow Eastern Europeans to work for a fraction of what their German colleagues earn, both legally and illegally.

The measure, part of German Chancellor Gerhard Schröder's package to spur growth and create jobs, is meant to prevent a distortion of competition and protect people from having to work for too little.

It's in part a reaction to a 1.2 percent drop in wages in Germany following the entry of Poland, the Czech Republic and the Baltic States into the European Union last year. Experts believe that downward pressure on wages in Germany will continue this year unless Berlin takes decisive steps to curb the influx of cheap labor from Eastern Europe.

Chasing "black sheep"

The task force in the German Economics and Finance Ministry will in future conduct bilateral talks with the 10 new member states in order to push them to uphold EU labor and services law. The new working group is also meant to create clear criteria for service providers, branches, companies as well as workers from the new member states.

Gerd Andres, parliamentary under secretary in the German Economics Ministry, said the authorities should go after "black sheep" and prevent Eastern European firms from bypassing EU laws to the detriment of the German labor market and economy.

Germany did insist on and achieve a seven-year freeze on people from the new member states from getting automatic access to the German labor market in the run up to the EU's eastward expansion last year. But immediately upon entry, companies in Poland and the other new member states gained the right to sell business services in the rest of the EU. Just last month, Chancellor Gerhard Schröder had to intervene in EU plans to liberalize services which would have thrown the doors further open for cheap labor from the East.

Under EU law, workers sent to a different country for a short-term contract must receive the minimum social benefits and wages of the state where they are carrying out the project.

This doesn’t apply, however, to self-employed workers and foreign subcontractors. In Germany, the meat-packing industry has been particularly affected. Tens of thousands of workers lost their jobs in recent months, as their work is increasingly being done by companies from Poland and Hungary who essentially "lend" their foreign workers to companies here. The wages the easterners receive are between just three and five euros an hour.

Expanding minimum wages

In addition, the new task force is meant to examine whether the minimum wage rule that applies to the German building sector, one of the few industries that does have such a provision, can be expanded to other areas.

Unlike other EU countries, Germany does not have a general minimum wage, because such a law was long considered to be an infringement of the right for industrial sectors to have their own pay scales. But, now with low-wage workers from Eastern Europe squeezing Germans out of jobs at a time of record unemployment and key regional elections coming up in the state of North Rhine-Westphalia next month, Chancellor Schröder is considering extending the law.

"We'll take a look at whether the anti-dumping law that applies to the building trade can be gradually extended to take in other sectors," Schröder said on Wednesday. "The aim is to make sure that dumping incidents do not ruin good companies that are unable to compete with such low wages.”

Employers against minimum wages

However, not everybody is happy with the idea of legally-set minimum wages. German employers say it would be counterproductive as job opportunities for unskilled German workers would be lost. In addition they claim companies would be burdened with the costs of greater bureaucracy.

The Institute for Labor Market and Job Research (IAB) said that a minimum wage in individual sectors would help to reduce the pressure on wages in Germany through eastward expansion, provided it was just a temporary measure.

Ulrich Walwei, deputy head of the IAB told the daily Berliner Zeitung that the government also had to be careful in its selection of sectors to introduce a temporary minimum wage in order to avoid damaging competition.