Battle in Germany to water down minimum wage

A fixed minimum wage was the carrot which conservative Chancellor Angela Merkel dangled in front of centre-left Social Democrats (SPD) to woo them into a coalition that would win her a third term in power.

During her first two terms, Merkel’s conservatives had always favoured separate pay deals by industrial sector and region, arguing that a national minimum wage would harm many small and medium-sized businesses and could force them to lay off workers.

But the SPD was clear: it would only enter into a power-sharing deal if the conservatives agreed to the introduction of a fixed minimum wage of EUR 8.50 (USD 11.80) per hour to help Germany’s growing army of working poor.

It was a proposal that went against the conservatives’ deeply ingrained belief that wages should ultimately be set by the markets.

So, while Labour Minister Andrea Nahles (SPD) and her team are now working flat out to draft legislation by next month, critics are pulling out all stops to limit what they see as the negative impact on the economy.

Given the popularity of a minimum wage among voters – more than 80 percent favoured it in polls in the run-up to the September election – the opponents no long paint the doomsday scenarios regularly evoked in the past.

Nevertheless, a minimum wage "will be a real brake on the labour market," said the head of the BDA employers’ federation, Ingo Kramer.

He argued that such a restriction would price out of the market "the most vulnerable, such as the long-term unemployed or those who have never worked before".

Who should be exempt?

To placate hardcore opponents, the formulation adopted in the coalition government’s programme left the door open to a number of exceptions, as well as for a transition period until 2017.

Different employers’ federations are looking to exempt apprenticeships and trainees from the minimum wage mechanism.

And there are also suggestions that job-starters with no qualifications, retired people looking to top up their pensions with mini-jobs, and seasonal workers should be exempted.

Another moot point for employers is that a minimum wage will apply across the entire country, even though 25 years after the fall of the Berlin Wall average wages in the formerly communist eastern states are still below those in the west.

The DIW economic think-tank estimates that on January 1, 2015 when the minimum wage comes into effect, around 4.5 million people in Germany will stand to benefit.

But if the exceptions currently under discussion come into effect, as many as 1.5 million of them would be left out, said DIW economist Karl Brenke.

He believed that setting too many exemptions "would be fatal".

"It would lead to major distortions" on the labour market, particularly for low-qualified workers in the services sector, the expert argued.

Why, for example, would an employer hire someone at EUR 8.50 per hour when a pensioner could do the same work for much less?

As is often the case in Germany, the battle is also being waged on legal grounds, with supporters and opponents of the minimum wage arguing over whether any exceptions would conform to the principle of equality enshrined in the German constitution.

Unsurprisingly, a study commissioned by the Bavarian industry federation and Heidelberg University concluded this week that all the exemptions posited were acceptable.

But "dignity doesn’t recognise exemptions," the DGB trade union federation retorted and called for a fixed national minimum wage for everyone.

Mathilde Richter / AFP / Expatica