So what I can tell you today is a bit tentative, but it is nevertheless encouraging. In Germany, the combination of high labour costs and generous welfare benefits had, over time, crowded out an entire segment of the labour market: low-wage jobs for the low-skill group. Like in other countries, this is the group with the highest unemployment rate.
We are now pondering to adjust the incentive structure on the supply side by revamping the schemes of unemployment benefits and welfare assistance. A new type of “mini-jobs” with lower-than-usual payroll taxes is intended to help reinvigorate that labour market segment. Like other countries in Europe, Germany will need to tolerate a higher degree of wage differentiation.