Federal minimum wage a step closer to reality... in Germany

In a German bakery near the Polish border, Janine Jaediel serves a stream of customers who trickle in for coffee and apfelkuchen before the 4 p.m. Saturday close. 

Working 30 hours a week at 6.50 euros ($8.81) an hour, Ms. Jaediel has been searching for another job for a year, to no avail. “It’s difficult to pay my rent,” says Jaediel, who grew up around this border city of Frankfurt an der Oder. “New businesses continue to be created, but there are not enough jobs.”

Jaediel is one of the 7 million Germans, most situated in economically less-developed eastern Germany, who earn less than 8.50 euros ($11.40) an hour. But that may be poised to change, as the Social Democrats (SPD) and Chancellor Angela Merkel's Christian Democrats (CDU) announced today they would enter full talks to form a coalition government – talks that the SPD have insisted would only begin if the CDU agreed on a federally mandated minimum wage.

In exploratory talks with Ms. Merkel’s CDU and its Bavarian sister party, the Christian Social Union, this week, the Social Democrats have used a minimum wage of 8.50 euros an hour as their bargaining chip. And while there is still a gap between the SPD and the CDU on the topic – Merkel’s CDU has traditionally favored a minimum wage that varies by region and employment sector in order to avoid overloading small businesses – the talks' progress suggest that hurdle will be overcome.

"We have a joint goal of seeing a sensible minimum wage ruling – I am sure we will find a result but we didn't discuss it today," Hermann Groehe, CDU secretary general, told Reuters.

“Those who work full-time must be able to live on their salary, too,” SPD spokesperson Benjamin Seifert said on Wednesday, pointing out that neighboring wealthy EU countries had introduced a minimum wage with no negative side effects.

Currently, 21 of the 28 European Union countries boast a minimum wage – the rate is set at 9.43 euros ($12.79) in France and 11.10 euros ($15.06) in Luxembourg. Yet in Germany, shop assistants are often paid 6 euros an hour, hairdressers 4 euros an hour, and bakers 5.50 euros an hour.

Merkel's preference for a relative minimum wage was shared by her previous junior coalition partner, the liberal Free Democrats (FDP). But for the first time since 1949, the business-friendly FDP did not receive the 5 percent of votes they needed in the Sept. 22 elections to make it into parliament, thus opening the opportunity for the SPD to press the issue.

The wage debate

On a crisp October afternoon in Frankfurt an der Oder, Thomas Sader has set up an array of apples and nectarines over fallen golden leaves. He has run the fruit stand with three employees for 20 years.

But “8.50 euro an hour is too high,” says Mr. Sader, a native Frankfurter who operates a butcher shop in the frigid winter months. “I pay my employees 7.50 an hour and they have enough to live here. I have to be able to pay the business costs, too.”

Small service-sector businesses with fewer than four employees would see their total labor costs rise by up to 20 percent if a minimum wage of 8.50 euro is introduced, according to a report released in late September by the German Institute of Economic Research (DIW).

Joachim Möller, director of the Institute for Employment Research, calculates that, accounting for differing labor costs and productivity, there should be a minimum wage of 7.50 for East Germany and 8.19 for West Germany.

Dr. Möller also argues that a minimum wage should not be set for young workers who have not completed vocational training, a common system in Germany. “This could give an incentive to undergo these trainings,” he says.

The biggest beneficiaries of a minimum wage in Germany would be women, who make up 67 percent of low-wage earners, says Möller. A minimum wage causes less employee turnover, he added, and thus companies incur less costs through training periods.

A strike against poverty?

In 2012, there were 323,000 households comprised of workers not earning a living wage, and who must therefore receive supplemental welfare payments from the government, Germany’s Federal Employment Agency stated in figures released earlier this year. That’s 20,000 more than 2009.

“A minimum wage would be a financial and psychological relief for many families when they no longer have to fill out endless applications for supplementary Hartz IV [welfare benefits],” says Claudia Falk, leader of the German Trade Union Federation’s Minimum Wage Campaign.

She adds that the wage would in turn reduce costs to the state, while benefiting the economy by increasing consumer spending.

Still, the minimum wage is not a poverty panacea, says Kai-Uwe Müller, co-author of the DIW’s minimum wage report, and could limit the number of jobs available.

"A minimum wage isn't a blueprint to solve poverty in Germany,” says Dr. Müller, pointing out that people in the poorest households often don’t work at all. “But it's a very small step."