A Year on, Germany Tots up Pros and Cons of Minimum Wage

One year has passed since Germany introduced a national minimum wage, with no evidence so far of the catastrophic economic consequences predicted by its opponents.

Nevertheless, a huge influx of refugees, most of whom will initially depend on menial and low-paid work, has reignited debate about the need for, and effectiveness of, a legal basic wage.

Germany is taking in about one million asylum seekers this year, which some observers predict will drive up unemployment as many will not immediately be able to find, or qualify for, work in Europe’s biggest economy.

The influx has come during a year in which legislation came into effect from January 1 obliging employers to pay their workers at least 8.50 euros ($9.30) per hour.

There were plenty of critics of the move, primarily small- and medium-sized businesses who argued it would push up labour costs and prices, and even force them to lay off workers.

In order to give time to different industries to adapt, it was agreed to stagger the introduction of minimum wage across some sectors over two years.

Now some opponents suggest an exemption be made for refugees to make it easier for them to find jobs.

“There could be a specific rule for refugees stating that the minimum wage rule doesn’t apply to them for a period of, say, 18 or 24 months,” said Michael Huether of the IW economic think tank.

So far, the government has ruled out making wide-scale exceptions.

– Record-low unemployment –

Chancellor Angela Merkel and her conservative Christian Democrats (CDU) had long opposed a national minimum wage, favouring instead separate pay deals by industrial sector and region.

But her coalition partners, the centre-left Social Democrats (SPD), were adamant they would only enter into a power-sharing deal if she agreed to the fixed basic wage to help Germany’s growing army of working poor.

A year after its introduction, there are many who say the minimum wage has not actually had much effect.

“I’m still struggling to make ends meet,” said Juergen Herbst, who works as a receptionist at a small family-run hotel outside Frankfurt.

Herbst, who is in his 50s, said his pay has risen by 149 euros per month. But his child support payments increased as well, he argued.

He said he had to call in the unions to force his employer to pay him the legal minimum wage.

It was a matter of “dignity”, Herbst argued, and said the hotel owners had still kept him on.

The government argued that more than three million people would be better off with the minimum wage.

But some economists doubted its impact, as it would give only a small boost to purchasing power at a time of already robust consumer demand.

At the same time, the doomsday predictions of others have not been fulfilled — the Ifo institute, for example, had warned it could destroy as many as 900,000 jobs and undermine German competitiveness.

In isolated cases, companies may have been forced to close.

In October, for example, a 200-year-old firm called Steinbach — which makes figurines for traditional Christmas nativity models — shut down, saying it could not finance the sudden 27-percent increase in wage costs.

But “on the whole, employers have not had to lay off people as a result of the reform,” said Klaus Brenke, economist at the DIW think tank.

In fact, Germany’s jobless rate has kept falling, to 6.3 percent in November, the lowest level since unification in 1990.

– ‘That’s enough’ –

The German economy is currently in fairly good shape and on course for a record trade surplus this year.

“Salaries are already above the minimum wage in the export sectors, primarily the manufacturing industry, so they haven’t been affected,” said Joachim Moeller, director of the IAB institute for employment research.

It was mostly people with few or no qualifications who benefitted.

From January 1, 2017, the minimum wage will finally be in force across all sectors, with only very few exceptions.

And not everyone sees a case to start exempting refugees.

“There is already an exception in place for people in on-the-job training. That’s enough,” said IAB’s Moeller.

“In the same way that the introduction of a minimum wage hasn’t destroyed jobs, making exemptions won’t create any either,” said DIW economist Brenke.