Mon, 20 Aug 2012

As part of the government’s efforts to boost employment, the Treasury is considering the introduction of German-style ‘mini-jobs’. 

Introduced in Germany nearly a decade ago, these have been hailed by some as playing a key role in reducing Germany’s unemployment, which at 6.8% is one of the lowest in Europe. 

However, both their record in boosting job creation in Germany and their likely effectiveness in the UK have been questioned.

Under the scheme, employees are able to earn €400 (£314) without paying tax and national insurance, while employers pay an easy to administer flat rate to cover pensions, social insurance and other payroll taxes.

Unlike the UK, there is no national minimum wage in Germany.

Dr Ben Reid, senior researcher at the Centre for Workforce Effectiveness based at The Work Foundation, says there are two problems with applying this scheme in the UK. 

Reid tells Recruiter: “As critics of its German equivalent have suggested, it could ‘lock’ people into low-wage and precarious employment. 

“But more importantly, compared to other potential interventions its effect is likely to be minimal; not least because it doesn’t address the root causes of current unemployment, particularly for young people. 

“By international standards we already have a fairly high personal allowance before we pay income tax. Therefore, the only likely effect of the proposed scheme in the UK are very marginally lower national insurance payments by companies for low-paid and part-time workers. 

“But we know that the ‘burden’ of employment taxes is not a particularly big factor driving unemployment at the moment. 

“Instead employers are – quite sensibly –reluctant to take on new staff because they see a lack of growth in demand for their products and services in this depressed economy, combined with the general forecast of extremely slow growth for several years to come.

“Schemes which boosted overall demand in the economy – for example, public investments in housing, infrastructure projects, job training and innovation – would create jobs directly or improve the quality of job the workforce could achieve, and encourage other companies to invest in staff as the outlook for the economy improved.” 

Albert Ellis, chief executive of international executive and professional services recruiter Harvey Nash, says that mini-jobs have done little or nothing to create extra jobs in Germany.

“What they have done is bring a little bit of the black economy into the formal economy,” he says, adding that they have also boosted employees’ motivation to take on extra work, knowing they won’t pay income tax.

Ellis says the real reason for Germany’s record on job creation is the weakness of the euro, which has boosted Germany’s exports.  

The idea has also met opposition from the Unite union. General secretary Len McCluskey warns that the scheme would lead to an “underclass of workers”.