What’s the real cost of Germany’s minimum wage?


With its relative economic stability during the eurocrisis and one of Europe’s lowest unemployment rates at 6.9 per cent, Germany is often held up as a shining example of macroeconomic policy.

But much of Germany’s economic growth is directly linked to the expansion of low-wage jobs and labour market flexibility over the last decade.

So while Germany’s GDP may have seen steady growth, on the other side of the coin, precarious work and social inequality is also on the up.

As a result, millions of Germans do not earn a living wage.

In an attempt to tackle working poverty in Germany, a new minimum wage of €8.50 will be introduced next year.

This long-awaited measure was one of the key demands of the Social Democrat Party (SPD) in forming a ‘grand coalition’ government with Angela Merkel’s Christian Democratic Union (CDU).

The new minimum wage will be rolled out gradually between January 2015 until 2017, in order to allow existing regional and sectorial collective bargaining agreements to expire, and to negotiate potential exceptions.

Unsurprisingly, the idea of a living wage has proven to be very popular amongst ordinary Germans but the debate rages on about how successful it will actually be in protecting Germany’s working-class, preventing job losses and strengthening the purchasing power of citizens.

Supporters say the new minimum wage will boost consumer spending in Germany, making the country less dependent on exports and increasing domestic investment.

Their arguments are fuelled by horror stories of unscrupulous employers taking advantage of the absence of a wage floor.

In one particularly shocking case, a hotel maid was found to have been paid €0.26 an hour.

But others advocate that a minimum wage will hurt German competitiveness, leading to higher inflation, and fewer opportunities for the low-skilled and long-term unemployed.

Deutsche Bank even predicted in a recent study that a minimum wage could cost Germany as many as one million jobs.



According to the German Institute for Economic Research, there are about six million people in Germany – about 17 per cent of the workforce – earning less than the projected minimum wage, most of whom live in the east of the country.

Other research puts that figure at well-beyond eight million people.

“We have almost 1.4 million people earning €4 an hour or less,” says Christoph Schmitz, a spokesperson for Ver.di, Germany’s public services union.

“People from Eastern Europe in particular are forced to work for very low wages. But anything below €6 is not enough [for anyone].”

The majority of these low-earning workers are women, young workers, the low-skilled and immigrants.

According to Thomas Rhein, Senior Researcher of the Institute for Employment Research, the new minimum wage will finally give them an opportunity to earn a decent wage.

“The gender pay gap in Germany is one of the biggest in the European Union. Women could benefit the most from this measure as many of them are employed in ‘mini-jobs.’”

The end of ‘mini-jobs’?

In 2002, the government of Gerhard Schröder introduced the Hartz reforms which aimed to boost the German economy.

As a result, unemployed workers are currently able to earn up to €450 a month without paying any taxes. But no tax means no social protection or job security.

Over the years, the system has led to serious abuses, as well as a growing number of ‘mini-jobbers’ – 7.5 million, according to the European Commission.

Maria works in a cosmetics shop in western city of Aachen and earns slightly more than the proposed minimum wage. But her husband works just ten hours a week as a packer.

“He earns between €200 and €250 per month,” she says. “It’s hard, so we both live mainly on my salary.”

Maria’s husband, like most ‘mini-jobbers’, has to rely on the support of his family otherwise he would have to collect social benefits.

For some low-wage workers, even a small salary increase would make a big difference.

“I earn €8.30 per hour working in a restaurant,” says Roshan, a 26-year-old worker originally from Sri Lanka.

“It [the minimum wage] will not be much of a difference for my employer but it will be for me. I will be able to send more money to my family. I live alone here, it is very hard.”

But many small business owners are not quite so enthusiastic.

Jamel owns a small food shop in Aachen. He says of the minimum wage: “If I have to pay more to my employees, maybe I will not be able to afford their wages or my bills. Should I work on my own, more hours? If I raise the prices, I will lose my customers.”

Just like Jamel, employers’ organizations have also been warning against a national minimum wage, arguing that it would be detrimental to competitiveness and would increase unemployment.

But for Michael Sommer, General Secretary of the German Confederation of Trade Unions (DGB) and President of the International Trade Union Confederation (ITUC), this is incorrect.

He told Equal Times: “Recent studies have proven that a minimum wage has no negative effect on employment levels.”

“The problem of rising poverty is partly addressed by the minimum wage, but we have to bear in mind that workers who get paid the minimum wage are still poor.”

The fact that employers may try to cut labour costs by, for instance, offering shorter contracts, is all the more reason why workers need protections like a national minimum wage.

“There are always employers misusing loopholes in the law and regulations. This is one of the reasons why we campaigned so strongly to place a minimum wage without any exceptions,” says Sommer.