The low‐skill low‐pay problem: Lessons from Germany for Britain and the US

Publisher Website
Google Scholar
Abstract
Over the last 20 years in both the US and Britain, the situation of unskilled workers has worsened relative to the rest of the workforce. In both countries, the poor, if not getting poorer are at least not improving their lot. In Germany, however, they are getting richer: workers in the bottom decile of the male earnings distribution in Germany earn twice as much as their counterparts in the US, where real wages for the low paid have been falling since the 1980s (the position of low paid workers in Britain falling somewhere between these two.) Given that the unemployment rate of the unskilled in Germany is much the same as in the US and lower than in Britain, this paper asks what lessons might be drawn from the German experience by policy‐makers in Britain. The paper considers both long‐term ways of raising the pay of those at the bottom end of the UK or US earnings distribution through the education system, and shorter term approaches through direct demand expansion or tax cuts /job subsidies. Accepting the desirability of a focus on the provision of work, the paper argues that a combination of minimum wages and job subsidies could be effective in providing reasonably paid jobs for the unskilled.