Labour Costs

Although Germany is more productive than most other countries, labour is significantly more expensive in this country because of high wage levels. A considerable proportion of labour costs are not even to be found on pay slips. It is not the gross wage which concerns companies but the total expense of employing their workforce. This includes the employers’ contributions to social insurance and benefits which form part of collective agreements, such as holiday pay and Christmas bonuses. From their gross pay employees must pay income tax and their share of social insurance contributions. Taken together, these items drive a wedge between the wage paid by employers and the pay received by employees.

 

 

This tax wedge is larger in Germany than in virtually any other country. More than half of all wages flow into the state’s coffers. The consequence is that companies are transferring their production to less expensive locations abroad and replacing simple labour with machines. Lowering the burden of taxes and other levies would achieve two aims simultaneously: Companies would create more jobs, because they would be commercially justifiable, and employees would net more from their gross wage.