A review on Germany’s minimum wage debate

Unlike many other EU countries, Germany does not have a national minimum wage even though specific industrial sectors have one.  The upper chamber of parliament, the Bundesrat, has now proposed a minimum wage of 8.5€. The debate over introducing a general minimum wage has therefore emerged and we want to summarize this debate, in particular German media voices, positions of German political parties as well as statements of economists.  

The official position of the CDU (Christian Democratic Union) regarding the introduction of a minimum wage is summarized in the “Wilhelmshavener Erklärung”, 4/5 January 2013. They want to introduce a mandatory “wage floor” (They use the term “Lohnuntergrenze “, wage floor, and not “Mindestlohn”, minimum wage) for sectors of the economy that do not already have one through collective bargaining. “We want to have a wage floor determined by collective bargaining practice”, typical for a market economy, “and not a political minimum wage”.  CSU (Christian Social Union of Bavaria) politicians have a similar viewpoint such as Bavarian Prime Minister Horst Seehofer, who, according to dpa, wants to enforce the collective bargaining process that than lead to minimum wages in specific sectors.

The FDP (Free Democratic Party) is in favor of industry-sector-specific minimum wages and against the introduction of a statutory nationwide minimum wage. Main argument is that, a high minimum wage would cost jobs. On 6 March 2013, according to dpa, FDP Minister of Finance Philipp Rösler affirms his opposition to a statutory minimum wage; it was, according to Rösler, the autonomy in wage bargaining that ensured the prosperity in Germany in the last years.

While the CDU proposal talks about a “Lohnuntergrenze” (wage floor), the SPD (Social Democratic Party) uses the much stronger notion of a “Mindestlohn” (minimum wage).

The SPD is in favour of introducing a statutory minimum wage. On the official SPD website, they talk about the introduction of “humane” minimum wages. Indeed, after the regional elections in Lower Saxony in January, the changed majority situation in the Bundesrat permitted, according to the SPD website, to present a law proposal together with the Green Party for a minimum wage. It has been passed on 1 March 2013. This proposal demands € 8.5 for every employee in each industry sector – as enforceable right. They argue that this minimum wage is necessary in a social market economy and is, moreover, one essential element of human dignity. A minimum wage, according to Malu Dreyer, Prime minister of Rhineland-Palatinate (SPD), would bring both flexibility to the employers and security to the employees. It is now up to the Bundestag to approve this law proposal. The SPD criticizes the model presented by CDU and FDP.  Peer Steinbrück, candidate for the chancellor, criticizes this undertaking: “They try to neutralize the topic”. However, a “wage floor” (“Lohnuntergrenze”) is not a nationwide statutory minimum wage.

In both German media and public life, there are voices against the introduction of a minimum wage as proposed by the SPD. Otto Kentzler, president of the ZDH (Federation of German Craft Industry) says to the FAZ  that a statutory minimum wage would be a “centrally planned economy”. “We see that in countries where we have a statutory minimum wage such as in France (…) the economic and employment situation is much worse than in Germany.  Also he thinks that the German collective bargaining mechanisms brought prosperity in last years. “We don’t have to call this into question but to enforce it”.

On 6 March 2013, Florian Rentsch explains in the FAZ Deutschland  his opposition to the introduction of a nationwide minimum wage. The arguments used by those in favour of a minimum wage, e.g. strengthening purchasing power, cannot be reached by such a mechanism.  
Moreover, according to Rentsch, the autonomy in wage bargaining is crucial to the social market economy and there is no reason to deviate from the” successful “way of the Agenda 2010. He argues for instance that a minimum wage would reduce chances for job promotion in the low-pay sector and give incentives to enter the illicit labour market. He considers that the current discussion is notably held with eye on upcoming elections and hides real problems of the low-pay market: the unemployment benefit (“Arbeitslosengeld II”) does not give sufficiently incentives to become fully-employed by reason of high charges in the low- and middle-pay market. Rentsch says that reducing these charges would be much more efficient than introducing a minimum wage.

Michael Hüther, director of the German Institute of Economy (Institut der Deutschen Wirtschaft, IW) argues at Handelsblatt Online on 6 March 2013 against the introduction of a minimum wage. Minimum wages of EUR 8.50 would cost jobs and are therefore “counterproductive” in distributive terms.  He does not see a reason for the introduction of a minimum wage and sets a reminder about keeping moderate wage agreements: “The bargaining round should remain under 3 percent by reason of employment neutrality.”

Heike Göbel writes on 24 February 2013 in the FAZ that, in fact, there is already an indirect minimum wage in Germany. The German government determines with the “Arbeitslosengeld II” (German unemployment benefit), which is financed by taxpayers’ money, already a minimum level for income. Doing this already indirectly determines a “minimum wage”: Nobody can be forced to accept lower paid work.

On the other hand, some economists are in favour of a minimum wage.
In Handelsblatt Online (6 March 2013), Ulrich Walwei, director of the IAB (Institute for Labor market and occupational research) states that the introduction of a minimum wage could countervail a decline in revenue in the low-pay sector. A minimum wage could also be the opportunity for the government to limit payments for unemployment benefits (“Arbeitslosengeld II”). Moreover, a minimum wage would, according to Walwei, motivate employees. Nevertheless, he sees also risks of an introduction of a minimum wage, e.g. less qualified applicants would have fewer chances to find a job when there is a relatively high minimum wage.

Gustave Horn, director of the IMK (Institute for Macroeconomics and economic research), underscores, according to Handelsblatt Online, the same advantage that a minimum wage may have: “In Germany, minimum wages would relieve the general government” because of fewer payments of unemployment benefits.