The Agenda 2010 reforms and poverty risk

The number of people at risk of poverty in Germany stood at ca. 14 million in 2006, one million lower than in 2005. The reduction of the poverty risk ran parallel to the decline in unemployment that, because of the Agenda 2010 reforms, was one million more in western Germany in the past boom than would have been expected from a continuation of previous patterns. The growing low-wage sector is not a problem but a success of German policy. Even with very badly paid jobs, a full-time position puts one above the poverty line because a wage subsidy system has been introduced that prevents the low-skilled from having to live just from their wages. This has implications for the ongoing debate on minimum wages in Germany. Politically induced wage increases that ignore the market threaten the very people with poverty that one wants to help. Minimum wages destroy jobs and reduces the earnings of the unemployed, after unemployment compensation expires, to the social welfare level (Hartz IV) and thus beneath the poverty line. Not resorting to a minimum wage system lowers the share of people endangered by poverty because this provides social welfare recipients with subsidised jobs and thus lifts their net income above the poverty-risk threshold.