Photo credits: claudiodivizia

The year 2022 can once again become a year of the minimum wage. The new government coalition wants to raise the statutory minimum wage to 12 euros per hour in Germany. In Europe, a Minimum Wage Directive is intended to ensure that existing minimum wages are increased to an appropriate level everywhere. The two initiatives are closely linked and are essentially aimed at a fundamental improvement of the minimum wage from a minimum wage to a living wage, i.e. a wage that secures a certain socio-cultural subsistence minimum and improves participation in society. However, how far-reaching the new minimum wage regulations will be in the end is still highly controversial, especially regarding the European initiative currently negotiated by the European Council, the European Parliament, and the European Commission in the so-called 'trilogue procedure'.

Germany: Increase of the minimum wage to 12 euros

After Olaf Scholz had already described the minimum wage increase to 12 euros as "his most important law", which he would "immediately get off the ground", it was clear that without a corresponding minimum wage increase, there would be no new government coalition. Thus, the Liberals (FDP), which had always spoken out against any "political increase" in the minimum wage until the Bundestag election, had no choice but to agree to a "one-time adjustment" to 12 euros in the coalition agreement. According to Labour Minister Hubertus Heil, a corresponding bill is to be introduced as early as the beginning of 2022. The planned extraordinary minimum wage increase can take effect in the year.

Compared to the increase in the minimum wage to 10.45 euros already decided for July 2022, a further increase to 12 euros would correspond to an increase of almost 15 per cent. Since its introduction in January 2015, the statutory minimum wage has been raised by only 15.5 per cent in seven years to January 2022, representing a gross average annual increase of around 2.2 per cent. The increase in the minimum wage to 12 euros is almost as high as the entire previous adjustment since its introduction. In total, up to 8 million employees could benefit from this, twice as many as when the minimum wage was introduced. The development of the minimum wage is thus facing a significant structural appreciation, which also significantly increases its level in relation to other wages. Whereas the minimum wage has always been below 50 per cent of the so-called median wage (the wage, where half of the employees earn less and the other half more), at a level of EUR 12, it is likely to be significantly higher than the 60 per cent of the median wage which the European Commission and in particular the European Parliament consider being one indicator of an 'adequate' minimum wage.

The initiative for adequate minimum wages in Europe

As in the German minimum wage debate, the European initiative is about a fundamental functional change of the minimum wage towards a living wage that secures a decent living. The EU proposal thus also represents a real paradigm shift in European labour policy. Not so long ago, the Commission essentially viewed adequate minimum wages and strong collective bargaining systems as institutional barriers to functioning free markets, thereby harming the development of growth and employment. In the wake of the last major economic crisis in 2008/2009, the EU exerted considerable influence in many countries towards freezing or even decreasing minimum wages and weakening collective bargaining systems. By contrast, the Commission views adequate minimum wages and strong collective bargaining as essential instruments for ensuring social, economic and, last but not least, political stability in Europe. 

The concrete debate on the European minimum wage directive is now about how far-reaching and binding the concrete European requirements for national minimum wages should be. This will be decided in the trilogue negotiations. Whereas the proposal of the European Parliament, adopted by a large majority in November 2021, is much more ambitious and more far-reaching, the draft compromise presented in December 2021 by the European Council, in which many national governments so far are highly sceptical and hostile to the initiative, looks at the dilution of the criteria to make as few binding requirements as possible. The French government hopes to agree in the trilogue negotiation during the first months of its EU presidency, which started on 1 January 2022. In its coalition agreement, the new German government has also clearly spoken out to support the Commission initiative and announced that it will "commit itself to binding minimum standards in the negotiations, as they will apply in Germany with the new minimum wage law after its adoption."

Minimum wage and collective bargaining

Both in Germany and at the European level, employers' associations are currently vigorously opposing the initiatives for adequate minimum wages. Above all, the German employers' associations stand out in this regard and not only reject an extraordinary increase in the minimum wage to 12 euros but also announce that they are prepared to defend themselves "with all political and legal means" against a European minimum wage directive.

Employers repeatedly put forward an argument against the minimum wage initiative that it would undermine free collective bargaining. This argument is unconvincing for several reasons. First of all, there is a big misunderstanding concerning the German Minimum Wage Commission: Again and again, the argument is made that there are quasi-negotiations between employers and trade unions. However, these are no negotiations in the true sense of collective bargaining. For example, the trade unions have neither the right to strike nor any other means of sanctions to push through their demand for a higher minimum wage. Instead, the entire construction of the Minimum Wage Commission aims to depoliticize the conflict over the adjustment of the minimum wage based on clearly defined rules.

A further argument for an alleged violation of free collective bargaining is based on the employers' claim that a minimum wage increase to EUR 12 would displace numerous collectively agreed wage groups. Moreover, most employees who benefit from a minimum wage increase to 12 euros now work in companies without a collective agreement. After all, it was precisely the continuing decline in collective bargaining coverage that put the statutory minimum wage on the political agenda in Germany. In addition, a study carried out by the WSI together with the employer-oriented Institute of the German Economy has shown that the introduction of the minimum wage in many traditional low-wage sectors has by no means led to the abolition of collective agreements, but rather to a more dynamic increase of collectively agreed wages. In this sense, introducing the minimum wage, especially in the low-wage sector, has strengthened collective bargaining.

Finally, it is not without a certain irony that employers' associations always discover their heart for collective bargaining when minimum wages are pulled at the centre of the debate. At the same time, otherwise, they promote the erosion of the collective bargaining system through OT memberships and refuse to support any political initiative to strengthen collective bargaining. To secure adequate minimum wages, not only legal requirements are necessary, but above all, a comprehensive strengthening of the collective bargaining system, which is based on autonomous negotiations between the strongest possible actors on the employee and the employers' side. The state has the task of creating the political framework conditions for a functioning collective bargaining system. In its coalition agreement, the new government made a clear commitment to strengthening the bargaining system and proposed several measures to this end. The European Minimum Directive also focuses not only on statutory minimum wages but above all on strengthening collective bargaining. According to this, all EU countries in which less than 70 per cent (even less than 80 per cent according to the European Parliament's proposal) of employees work in companies without a collective agreement should take concrete action together with trade unions and employers' associations to develop plans to increase collective bargaining coverage. The strengthening of collective bargaining and the increase of statutory minimum wages are not contradictory, but rather two sides of the same coin to promote adequate minimum wages in Germany and Europe.

This news piece is based on a longer article published in German in the journal Sozialismus, Heft 1 2022