Germany and the Minimum Wage

Given Germany’s tradition of healthy cooperation between employers and labor, it is surprising to learn that the country does not set a national minimum wage. A note in The Economist suggests that this is likely to change. Merkel’s party, the Christian Democratic Union (CDU), is likely to finally back a minimum wage that will be applied nationwide.
"Germany is one of the few European countries to lack a statutory minimum wage. Unions and employers negotiate wages sector by sector. In ten sectors agreed minimums apply to all. But jobs are growing in fragmented services not in manufacturing. Just over half of workers in western Germany are now covered by central agreements; in the east it is only a third. In 2007, 3.7m workers earned under €7 ($9) an hour and 1.2m under €5."

"The opposition Social Democrats and Greens have long backed a minimum wage. Now CDU leaders have endorsed a plan for a "binding lower limit for wages", set by an independent body representing unions and employers, similar to Britain’s Low Pay Commission. The expectation is that it will be close to the floor for temporary workers: €7.79 in the west and €6.89 in the east."

The author suggests that two factors played a role in the CDU’s change of heart. Interestingly enough, the world-wide concern over inequality, and the associated demonstrations, seem to have generated some concern on the part of the politicians. Even more interesting is the fact that the German legislators are beginning to realize that the conventional wisdom about setting a minimum is, in fact, false.

"A 2010 study said that a €7.50 minimum could eliminate 840,000 jobs at a cost of €4 billion a year."

As is often the case, economic projections are based on philosophy rather than data. What are the facts on the ground?

"Studies of eight sectors that have minimum wages commissioned by the labour ministry show little damage to employment. 'This contradicts all the fears of mainstream economists in Germany,' says Gerhard Bosch of the University of Duisburg-Essen."

All of you out there waving banners and camping out in the cold—keep the faith. You are likely accomplishing something even if you can’t recognize it yet.

"’This was a movement that came from the bottom up,’ says Karl-Josef Laumann, chief of the workers’ branch of the CDU. ‘If you work for eight hours you should be able to live from your wages’."

The concept of a "living wage" is an interesting one. Such thought are of little interest in the US because our politicians always think in terms of benefits to corporations. But, in effect, we do recognize the fact that a wage earner is not going to be allowed to die of hunger or exposure. Ultimately, the government provides sustenance in various subsidies: Food Stamps, Earned Income Tax Credit, Medicaid..... For some reason we seem to be more comfortable with the notion of support as a charitable act rather than as a right; we assemble a degrading and inefficient means of letting people know that they are failures.

We have the same arguments for why a higher minimum wage would be beneficial, but the conventional wisdom trumps all—no matter the data to the contrary. Perhaps if Germany provides us with one more data point, people will take notice.