Blog Post

Follow-up: The German minimum wage debate

Since our last blog post on the German minimum wage debate, there is now renewed interest in the topic. What are the prospects of introducing a nationwide minimum wage, given the Federal elections results? 

By: Date: September 30, 2013 Topic: European Macroeconomics & Governance

Related post:A review on Germany’s minimum wage debate

After the last Bruegel Blog post on the German minimum wage debate on 7 March there is yet a renewed interest in the topic. What are now the prospects of an introduction of a nationwide minimum wage, given the Federal elections results? The debate over the introduction of a legal minimum wage has gained importance ahead of coalition talks with Merkel’s potential coalition partners demanding a legal minimum of EUR 8.50 per hour. Beyond the question whether a minimum wage may now be politically feasible, understanding the key points of the debate appears important to understand the recent developments in the debate.


Germany is one of the few EU countries lacking a nationwide minimum wage. According to Patrick Bernau, the lack stems from two principles, namely the principle of collective bargaining – wages are determined by unions and employers – and the principle of ordoliberalism (Ordnungspolitik) according to which minimum wages can only be useless or harmful.

Yet, there has been renewed interest in the topic. According to Patrick Bernau there are essentially three reasons for the “new love for the minimum wage”. First, the Hartz-reforms (2003-2005) created a lot of low-wage employment. As a consequence, the new mantra of the labour market became “Jeder muss von seiner Hände Arbeit leben können.” i.e. it is not possible that employed people need state aid. Second, the unions are losing members, which makes the bargaining of higher wage rates more difficult. Unions are now demanding the state to prohibit cheap wages in order to create downward pressure on the bargained wage rates. Third, there is no consensus among economists whether a minimum wage really jeopardizes employment. Moreover, signs of an economic recovery reanimate the debate.  

Currently, minimum wages exist in industries in which labour unions have been strong enough to forge an agreement with employers. Chancellor Angela Merkel was originally opposed to a minimum wage, but campaigned on the idea that empoyers and the unions decide on minimum pay on an industry-by-industry basis, tailored to their specific needs. Practically, the government used existing laws to introduce minimum wages in more and more industries. The government then endorses those deals, making them legally applicable to all workers in a certain industry. Since 2009, the conservative-liberal government (CDU/CSU-FDP) endorsed in total seven deals, there are 12 in total (see here for details). The last industry-specific minimum wage has been signed off on September 18 by Merkel’s Cabinet during the last meeting before the elections. The deal for stonemasons foresees a minimum pay of at least EUR 10.13, adding to agreements for cleaners, construction workers and others. The next industry concerned will be that of coiffeurs. In April this year, employers and unions agreed on a minimum wage of EUR 8.50 per hour, applicable up from 2015.

Ahead the Federal elections, CDU/CSU politicians adopted a more favorable position regarding minimum wages. At a conference of the Federation of German Industries (BDI) in June Merkel said that she didn’t think that it was right that people working full-time still needed to apply for welfare benefits to make ends meet.  CDU Minister of Labour Ursula von der Leyen presented proudly the industry-specific minimum wages, underlining however that it’s “absolutely wrong” for politicians to fix minimum wages. She said that “experts, unions and employers should do it.”

A nationwide minimum wage is back on the agenda for the up-coming coalition talks, now that the FDP, categorically opposed to a nationwide minimum wage, has been voted out of both the government and parliament. The two potential coalition partners of Merkel’s CDU/CSU, the Social Democrats (SPD) and the Greens, are both demanding EUR 8.50 an hour, and the Left Party wants a minimum wage of EUR 10 an hour.  According to the Welt the Social Democrats made the minimum wage a condition for the negotiations. The Left Party proposes  to use the small red-red-green majority in the Federal parliament (Bundestag) to introduce a minimum wage. However, the SPD refuses to make any agreements before the forming of a government.  

Introducing a nationwide minimum wage is a controversial topic among academics and economists. Jens Weidmann, President of the Bundesbank does not favor the introduction of a nationwide minimum wage.  “It deteriorates the employment chances of the low-qualified and the permanently unemployed, and complicates the access to the labour market for those who do not have pronounced job-related skills.” he says according to the Handelsblatt. A minimum wage would involve the risk that companies hire less workers, and this would hurt those groups that should benefit from a minimum wage. 

A study of the German Institute for Economic Research (DIW) by Karl Brenke and Kai-Uwe Müller shows that “a minimum wage would affect the distribution of income and balance wage inequalities in the low-wage sectors”.  

On balance, however, the co-authors do not recommend the “abrupt introduction of a minimum wage of EUR 8.50 per hour”. Instead, they call for a lower minimum wage level of about EUR 7, which after an introductory phase could gradually rise over time.  They do not believe that an increase in wages would significantly reduce poverty and inequalities in income. Average household income is less likely to rise at all as a majority of low-wage earners are working on a tax-free and part-time basis, with many of them just adding to the wage of a better paid husband or wife. An increase in their combined household income would mean higher income taxes, and subsequently the same or even less disposable income.

Moreover, they do not believe that a minimum wage can boost Germans’ average purchasing power: the total German wage sum would increase by only 3 percent.

Regarding the effects on businesses, they find that a minimum wage wouldn’t jeopardize the competitiveness of internationally orientated firms. However, smaller firms would be affected. Notably in the services sector, such as restaurants and call centers, a minimum wage of EUR 8.50 would increase total wage costs by up to 20 percent. These costs would be passed on to consumers.

Thus, the minimum wage would clearly come at a price:  “No matter whether its lower employment, higher consumer prices or lower business profits, someone is going to pay the price”, Kai-Uwe Müller told the DW. The current minimum wage debate in Germany, suggesting a win-win situation for all, is misleading according to Müller.  Nevertheless, the co-authors do not generally refuse minimum wages: “There is no clear proof that a minimum wage would lead to a loss in employment” says Brenke according to Spiegel Online. The research in this topic has recently advanced. While neoclassical models predict that a minimum wage disturbs the equilibrium between supply and demand, more recent models allow for other factors such as the stronger bargaining power of employers (e.g. due to regional immobility of workers). Karl Brenke told DW that “differentiation is the buzz word”. “In Britain, minimum wages are related to age and qualifications, while in the U.S. you have different wages in different regions.”

Patrick Bernau writes a minimum wage would change the definition of how much money you need to live from what you earn.  Most politicians consider the unemployment benefit rates (Hartz-IV-Sätze) as the threshold of the minimum subsistence level (Existenzminimum). Yet, the level of the Hartz-IV-Sätze depends on how much low-wage earners earn and therefore the minimum wage level. According to Bernau, the introduction of a minimum wage would increase the minimum subsistence level and people earning the minimum wage would soon have again the impression that their earnings barely exceed unemployment benefits. What counts for them is uniquely the fixed difference between unemployment benefits and other income. Additional money cannot solve the poverty problem, he states.

Stefan von Borstel writes in the Welt that SPD, Greens and the Left Party preach the minimum wage as a cure-all against unemployment fraudsters, poverty, inequality, in brief as the programme for social justice. Not to forget the boost to the economy thanks to a minimum wage.  According to the DIW study, a minimum wage would only satisfy the “sense of justice” of Germans. But is this “worth to gamble with existing jobs and employment chances of millions?” he asks.

Thomas Lobinger, Professor for Civil Law, draws attention to legal problems of a minimum wage. He says that it would be hardly compatible with the German Basic Law as it contradicts the Social State Principle. How to “explain to a worker that he loses his job, because his employer cannot pay EUR 8.50 per hour.” The State mustn’t shift the protection of decent existences to businesses. Moreover, he believes that the autonomy in wage bargaining would be significantly affected by a minimum wage. 

Related post:A review on Germany’s minimum wage debate


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read about event

Past Event

Past Event

Sustainable growth in transition countries

This event will feature a presentation of the EBRD Transition Report 2017-18.

Speakers: Jonathan Charles, Zsolt Darvas, Sergei Guriev, Debora Revoltella and Lucio Vinhas de Souza Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 28, 2017
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article More on this topic More by this author

Opinion

The EU and the US: a relationship in motion

Europe’s post-crisis recovery has been disappointing in comparison with the USA. But lower rates of inequality are staving off populism and bolstering support for globalisation. With the USA an increasingly unpredictable partner, the EU must address internal imbalances and build alliances to defend the multilateral order.

By: Maria Demertzis Topic: Global Economics & Governance Date: July 28, 2017
Read article More by this author

Blog Post

How to make finance a force for sustainability

Traditional finance focuses on financial return, considering the financial sector separate from both society and the environment. In contrast, sustainable finance considers financial, social and environmental returns in combination. In a new essay, Dirk Schoenmaker provides a framework for sustainable finance highlighting the move from the narrow shareholder model to a broader stakeholder model. Here he presents the key arguments.

By: Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Date: July 12, 2017
Read article Download PDF More by this author

Essay / Lecture

Investing for the common good: a sustainable finance framework

Traditional finance focuses solely on financial return and risk. By contrast, sustainable finance considers financial, social and environmental returns in combination. This essay provides a new framework for sustainable finance highlighting the move from the narrow shareholder model to the broader stakeholder model, aimed at long-term value creation for the wider community. Major obstacles to sustainable finance are short-termism and insufficient private efforts. To overcome these obstacles, this essay develops guidelines for governing sustainable finance.

By: Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Date: July 11, 2017
Read article Download PDF More by this author

Parliamentary Testimony

European Parliament

Combating inequalities as a lever to boost job creation and growth

This presentation was delivered in Brussels at the Employment and Social Affairs Committee (EMPL) of the European Parliament on 29 May 2017.

By: Zsolt Darvas Topic: European Parliament, Testimonies Date: June 20, 2017
Read about event

Past Event

Past Event

Inclusive growth: global and European lessons for Spain

Can manufacturing still be a driver for inclusive growth around the world? What European and national policies can foster inclusive growth in Europe? What is the situation in Spain and what can Spain learn from the global and European experiences?

Speakers: Cristina Cabrera, Zsolt Darvas, Maria Demertzis, Alejandra Kindelán, Robert Lawrence and Federico Steinberg Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Calle Los Madrazo 36-38 Madrid Date: May 31, 2017
Read article More on this topic More by this author

Blog Post

The decline of the labour share of income

What’s at stake: at odds with the conventional wisdom of constant factor shares, the portion of national income accruing to labour has been trending downward in the last three decades. This phenomenon has been linked to globalisation as well as to the change in the technological landscape - particularly “robotisation”. We review the recent literature on this issue.

By: Silvia Merler Topic: Global Economics & Governance Date: April 24, 2017
Read about event More on this topic

Past Event

Past Event

Global outlook and policy priorities

At this event the Managing Director of the International Monetary Fund, Christine Lagarde, will speak about the global outlook and policy priorities, ahead of the 2017 IMF Spring Meetings

Speakers: Christine Lagarde, Jean-Claude Trichet and Guntram B. Wolff Topic: Global Economics & Governance Location: Brussels Date: April 12, 2017
Read article More on this topic More by this author

Blog Post

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read article Download PDF More on this topic

Policy Contribution

Making the best of the European single market

Now more than ever, the EU needs to address concerns about the significant decline in productivity growth and the increasing perception of unfairness. Completing the single market would unlock the EU's growth potential. At the same time, the EU should empower member states to fight inequality by helping them better distribute the gains arising from economic integration.

By: Vincent Aussilloux, Agnès Bénassy-Quéré, Clemens Fuest and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 2, 2017
Read about event More on this topic

Past Event

Past Event

Achieving inclusive growth: what have we learnt?

Inclusive growth has been the exception globally, and will be a greater challenge in the future. Achieving it has to be central to our agenda, but requires rethinking and reprioritisation.

Speakers: Tharman Shanmugaratnam and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 26, 2017
Load more posts