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22 February 2016

The German minimum wage: experiences and perspectives after one year

minimum wage Germany

Since 1 January 2015 a statutory minimum wage of €8.50 per hour applies in Germany. A recently published study by the Institute of Economic and Social Research (WSI) of the Hans-Böckler-Stiftung looks at the impact of the newly introduced minimum wage after one year. This study yields the following key results:

(1) The substantial above-average wage increases in the classical low-wage sectors such as retail, hotels and restaurants, security services and other personal services such as laundry services and hair-dressing indicate significant effects of the introduction of the minimum wage. Even though it is not yet possible to say exactly how many employees benefitted from the introduction of the minimum wage, the fact that in 2014 between 4.8 and 5.4 million employees earned less than €8.50 suggests that millions of workers benefitted from the new statutory minimum wage;

(2) There were no negative effects on the labour market. None of the horror scenarios of up to one million job losses predicted by many economists actually materialized. On the contrary, employment in Germany has seen a continuous increase. Only the so-called 'mini jobs' (a special form of marginal part-time employment) show a strong decline, but many of these were transformed into regular jobs requiring social insurance.

(3) The introduction of the minimum wage also supported collective bargaining policies and, thus, contributed to the further increase of the lowest wage groups. This applies in particular to the meat industry, hair-dressing and the agricultural sector.

Against the background of these positive experiences, discussions are currently being held on the future adjustment of the minimum wage that is to come into effect at the beginning of 2017. Following the German Minimum Wage Act, the Minimum Wage Commission - composed by employers and trade union representatives - has to give a recommendation by taking into account the recent developments of collectively agreed wages. According to the wage index of the Federal Statistical Office, collectively agreed wages increased by a total of about 5.5% in 2014 and 2015. Thus, the minimum wage would have to be increased to about €9.

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