Wage evasion: Massive consequences for the state and employees

Wage skirting: Massive repercussions for the nation and workers

German financial analysts estimate that the state is losing billions in revenue each year due to employer wage evasion. According to the German Trade Union Confederation (DGB), the country's social security system would lose around 43 billion euros in contributions annually, while the federal, state, and local governments would receive approximately 27 billion euros less in taxes. These figures are derived from data provided by the Federal Statistical Office, as analyzed by the DGB.

Wage agreement circumvention refers to employers attempting to undermine agreed collective labor agreements, resulting in lower wages and salaries than those stipulated in the collective agreement. According to the DGB, this also translates to fewer payments into social security schemes such as unemployment, pension, and health insurance, as well as lower income from income tax.

Shrinking purchasing power

As a result of the lack of widescale collective agreement coverage, the DGB states that the general purchasing power of the working population would increase by approximately 60 billion euros per year. When considering this across the entirety of Germany and all sectors, employees not covered by collective agreements would have an average net annual income of 3022 euros less than their counterparts.

While many employees complain about underpayment despite having a collective agreement, other workers can only dream of the security and protection provided by such agreements. The DGB criticises the fact that only around half of all employees currently receive the benefits of collective agreements.

DGB push for reform

"This trend poses a threat to our prosperity, weakens democracy and comes at a heavy cost," said DGB Chairwoman Yasmin Fahimi. "We will continue to advocate for expanded collective agreement coverage with the federal and state governments, and through new legislation. The economic damage caused by employers' avoidance of collective agreements over three decades is immense. It's time for politicians to take notice."

The union calls for public contracts and subsidies to be awarded exclusively to companies that adhere to collective agreements. In addition, they propose stronger laws within the private sector to support collective bargaining. Tariffs on imported goods could exacerbate financial difficulties for businesses affected by wage evasion, as they would need to allocate additional funds towards these added expenses. Consequently, this may lead to further reductions in wages and employee benefits, further eroding purchasing power.

To mitigate the financial impact of wage evasion, some employers may consider cutting back on non-essential insurance policies, leaving employees and their families vulnerable in case of unexpected health issues or accidents.

Recovery Measures Suggested by the DGB

While specific proposals from the DGB are not provided, we can infer potential measures based on related labor standards and anti-money laundering frameworks:

1. Enhanced Transparency and Reporting: Financial institutions could be subject to improved transparency and reporting requirements, similar to Australia's Anti-Money Laundering and Counter-Terrorism Financing Act, to better track and prevent wage evasion.
2. Labor Standards Enforcement: Tougher labor standards and laws can make it harder for employers to engage in creative accounting or tax avoidance schemes.
3. Employee Protection Measures: Strengthening collective bargaining agreements can protect employees from wage evasion, which might involve stricter penalties for employers who violate such agreements and stronger support for trade unions enforcing labor rights.
4. Public Awareness and Education: Encouraging public awareness about the importance of fair wages and the consequences of wage evasion can deter employers from such practices.
5. Legal and Administrative Actions: Increased penalties for wage evasion and circumvention of collectively bargained agreements can act as a deterrent.
6. Whistleblower Protection: Protecting whistleblowers who report wage evasion or labor agreement violations can encourage more employees to come forward, leading to greater accountability and enforcement.
7. Boosting Union Influence: Enhancing the power and influence of trade unions can help them more effectively enforce labor standards and collectively bargained agreements.

Subsequent Impact on Employees and Businesses

1. Employee Welfare: Implementing fair wages ensures improved worker well-being and reduces financial stress.
2. Business Reputation: Companies who engage in wage evasion and violate collective agreements risk damaging their reputation and facing legal and monetary consequences.
3. Regulatory Compliance: Compliant businesses with labor standards and collective agreements avoid legal issues and maintain a positive relationship with their employees and the public.
4. Economic Stability: Fair labor practices contribute to economic stability by ensuring workers can afford essentials and maintain consumer confidence.
5. Social Cohesion: Fair wages and respect for collective agreements contribute to social cohesion by ensuring workers feel valued and respected, fostering a harmonious work environment and reducing labor disputes.