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What’s the big deal about minimum wage in Germany?

  • October 21, 2021

Ever since the first modern minimum wages were introduced in the late 19th century in New Zealand and Australia, they have been very controversial. As the name suggests, a minimum wage is the lowest amount employers must pay employees. Around the world most countries have some sort of minimum wage in place, though there are often many exceptions to the rules.

In Germany, a federal minimum wage was introduced in January 2015, under conservative Chancellor Angela Merkel, though it was mainly because of pressure from her coalition partner, the Social Democrats (SPD).

It replaced various wages negotiated within different sectors and was set at a pretax rate of €8.50 across the country. Since then it has slowly crept up, with the most recent increase, in July, bringing it up to €9.60 ($11.20). Two more increases are planned. By July 2022 workers can expect to earn at least €10.45 an hour.

Within Europe, Germany’s minimum wage is on the high side, only topped by Luxembourg and France. A number of EU countries, such as Denmark, Italy, Austria, Cyprus, Finland and Sweden, have no national minimum wage. They rely on unions and individual sectors to set their own wages.

Who gets a minimum wage in Germany?

Germany’s minimum wage covers a majority of workers in the country over 18. This includes seasonal workers no matter where they are from.

As in most places, there are a number of exceptions to the rule. Apprentices, workers taking part in job-promotion schemes, long-term unemployed people in the first six months after reentering the labor market and self-employed individuals are not covered by the minimum wage law.

Workers transiting through the country, such as airline pilots and truck drivers, are likewise not covered by the law.

The initial 2015 minimum wage rate was set by the government at the time. After that an independent government body called the Minimum Wage Commission took charge of setting the rate and making adjustments. In all decisions, the commission has to balance worker protection, fair competition and employment levels. Political considerations should be left at the door. But now the independence of this group is being called into question.

The ones who have the say: the FDP’s Christian Lindner, the Greens’ Annalena Baerbock and Olaf Scholz from the SPD

Minimum wage as political football

What has brought the minimum wage back into the spotlight in Germany is the coalition talks to form a new government. The talks between the Social Democrats, Greens and the neoliberal Free Democrats (FDP) will now start in earnest after an initial exploratory phase. Now they need to all agree on a plan to govern.

One SPD and Green campaign promise that may turn into reality is a plan to raise the minimum wage within a year to €12 an hour. Doing this would not only tear up years of work by the Minimum Wage Commission: It would go over the body’s head and taking away its independence. Unfazed by this paradox, the parties say that, after this one-off increase, the commission can once again take over.

Critics are up in arms about this sudden politicization of a supposedly autonomous body. The parties point out that the minimum wage was too low to begin with and raising it is a way to fight poverty — but many experts say a minimum wage is not the way to fight poverty. Such a big increase would also make it less likely that when the commission is back in charge it would agree to more increases in the near future, keeping the wage stuck at €12.

Why is minimum wage controversial?

When the minimum wage was originally implemented in Germany in 2015, many feared that higher wages would force businesses to go where labor is cheap or replace workers with machines. Some experts predicted up to 900,000 job losses. That did not happen then. It will be a gamble to see if the economy is once again strong enough to deal with such an increase.

Over the years various studies have come to different conclusions about the pros and cons of a mandated minimum wage. Some found no correlation between employment and a minimum wage; others found negative impacts such as reduced hiring or fewer hours for workers. Still others claim a direct positive impact.

Will Germany be able to keep growing and creating jobs with a €12 minimum wage?

The positive effects usually listed include helping low-skilled workers earn more, decreasing poverty, encouraging legitimate employment, creating more technological innovation and reducing employee turnover.  

The supposed negative impacts are just the opposite. Opponents say a minimum wage hampers firms, encourages the use of machines instead of people, leads to fewer jobs, makes it harder for first-time job-seekers and adds to long-term unemployment as jobs move abroad.

For the naysayers the biggest threat from a minimum wage is a wage-price spiral. This happens when business have to pay more for labor and workers then have more money to spend, which causes demand and therefore prices to increase. To make up for these increased prices, wages then go up. It is a circle and everyone ends up paying more in the end and inflation increases.

But the story is not the same everywhere, and wages are only one piece of the complex economic picture; pinpointing the true impact of minimum wages will keep experts busy for the foreseeable future.

The one thing everyone can agree on is that workers should be able to live from what they earn. What that means to the future government will slowly come into focus as they agree to a governing platform over the next weeks.

Article source: https://www.dw.com/en/what-s-the-big-deal-about-minimum-wage-in-germany/a-59559933?maca=en-rss-en-bus-2091-xml-atom

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