Anxious about rising unemployment, and keen to stimulate job creation, the Treasury is understood to be looking closely at the German ‘mini-jobs’ contract system, introduced a decade ago. This allows workers to hold several ‘mini-jobs’, paying up to EUR400 (£316) per month, free of tax and social security contributions. Instead, the employer pays a flat rate covering pension contributions, social insurance and wage taxes.

 Currently the UK personal allowance for income tax is £8,105 per year, which means that anyone holding more than two jobs paying at ‘mini jobs’ rates would have to pay tax. The tax affairs of such an individual would also be particularly complicated because of the need for HMRC to issue, and the employers to apply, tax codes in respect of each employment. The proposal would thus be a potential simplification of the tax system. The national insurance position would effectively be unchanged, as each separate post is eligible for a full national insurance earnings threshold.

One intriguing implication to this proposal that occurs to me is that it might suit micro businesses with a relatively small number of clients paying around £250 to £300 per month each (for example bookkeepers) to take up a mini job with each client rather than operating on a self-employed basis. Of course the attraction to the ‘employer’ would depend on the flat rate payment due, which in Germany is very low compared to standard social security contributions.

There are key disadvantages for the German mini-jobber, certainly one who does not have a mini job as a supplement to a main employment. They forgo core benefits of regular employment, such as pension entitlement. There is no national minimum wage in Germany, and thus no complications in that respect with regard to the maximum income level. And they also forgo unemployment benefit above a basic threshold. Despite this, 20% of German employees (7.3 million people), held at least one ‘mini job’ in September 2010.

One key question is how UK mini jobs would interact with minimum wage requirements, given that they would effectively restrict mini job hours to less than 50 per month at the German exemption level. Exempting mini jobs from minimum wage would be hugely controversial, and might well in practice make them unattractive to workers despite the tax exemption, unless as intimated above a worker held a significant portfolio of mini jobs.

Mini jobs are also very controversial in Germany. A recent attempt to set a maximum number of hours for mini-jobs, and thus effectively a minimum wage, failed, but it appears likely that a German national minimum wage is on the political horizon, which could have serious consequences for the future of the mini job.

Perhaps most importantly, a significant body of opinion among economists lays a large proportion of the ills of the modern world economy at the door of the German obsession with low wages and mini jobs. German competitiveness fuelled by falling unit labour costs sustained an export-led German growth model that fuelled credit-led demand in Southern European economies, leading to the current Eurozone crisis in Spain, Greece and Portugal. And many economists argue that what is needed is a boost to demand in the form of increases in real wages, on the basis that an economy’s low-wage labour is also its potential business customer base.

Thus mini jobs, whilst perhaps superficially attractive, carry with them social and economic baggage which might make them counter-productive, to the extent of being part of the economic problem rather than its solution.

 

Advertisements