By Andrea Thomas
BERLIN (Dow Jones) — On Wednesday, the federal cabinet decided to raise the minimum wage once to €12 an hour. Around 6.2 million employees are expected to benefit from the new wage floor, which will apply from October 1st. The minimum wage is currently €9.82. An increase to EUR 10.45 is already planned for July. The cabinet also approved an increase in the earnings limit for mini-jobs to EUR 520 per month from the current EUR 450.
“Many citizens of our country work a lot but earn little – that has to change. I am pleased that we in the cabinet decided today to increase the minimum wage to 12 euros,” said Federal Chancellor Olaf Scholz on the short message service Twitter. “For me one of the most important laws and a question of respect.”
Federal Labor Minister Hubertus Heil (SPD) explained in the ZDF morning show that people “deserved” the higher minimum wage in Germany. The minimum wage will now be “poverty-proof”. Since 2015, a minimum wage commission, independent of politicians, consisting of employer and employee representatives, has determined the amount of the minimum wage. Heil emphasized that after the one-off increase, the commission would again decide on the lower wage limit.
Employers and economists warn of harmful consequences
The minimum wage now set by the federal government met with little approval from employers. You see the trusting cooperation of the past few years in the Minimum Wage Commission severely disturbed. “The resulting system change from a minimum wage development based on collective bargaining to a state wage development has serious consequences,” complained Employer President Rainer Dulger from the Confederation of German Employers’ Associations (BDA). “The introduction of the minimum wage made politicians promise that the minimum wage commission would set the minimum wage. This promise is now being broken and is making the minimum wage a political pawn.”
The Federal Association of the Service Industry (BDWi) also spoke out against an increase in the general minimum wage to 12 euros by the federal government. “The federal government is not doing itself any favors by raising the minimum wage by law. It undermines trust in collective bargaining autonomy. In the worst case, the law will be overturned by the Federal Constitutional Court. This would massively reduce the coalition’s trust and credibility right at the beginning of the legislature,” explains BDWi President Michael Heinz.
The Kiel Institute for the World Economy (IfW Kiel) warned that a minimum wage of 12 euros would increase employment risks, while poverty would hardly decrease. “With such a high minimum wage, there is an increased risk that there will be a reduction in employment in the affected wage areas. This applies even where employers have relatively large wage-setting leeway, i.e. have market power over employees,” warned IfW economist Dominik Groll. “At the same time, the higher minimum wage will hardly lead to the reduction of poverty or social inequality. A minimum wage cannot reach the vast majority of people at risk of poverty, these are primarily pensioners, the self-employed, the unemployed or part-time workers.”
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(END) Dow Jones Newswires
February 23, 2022 06:44 ET (11:44 GMT)