Study examines possible effects of a national minimum wage

In July 2006, the Institute for Work and Technology (IAT) published the findings of a study on the effects of the introduction of a national minimum wage of €7.50 per hour. The IAT found that about 4.6 million employees, corresponding to 14.6% of all employees, would then be entitled to a pay rise, a benefit affecting women and low skilled workers in particular. Labour costs would rise by between €10 billion and €12 billion. This would, however, also positively affect the tax income of the state and the social security system, which would receive additional contributions.

Background

Since 2004, a public debate has taken place in Germany on the possible introduction of a statutory national minimum wage (DE0409205F). The government is expected to make a proposal in the near future on whether to introduce a statutory national minimum wage or to extend the Posted Workers Act (Arbeitnehmerentsendegesetz). The Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales, BMAS) is expected to present a legislative initiative in the coming months.

On 27 July 2006, the President of the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), Dieter Hundt, underlined in a press release the BDA’s opposition to any national minimum wage. However, the majority of the trade unions affiliated to the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB) – with the exception of the Mining, Chemicals and Energy Industrial Union (Industriegewerkschaft Bergbau, Chemie, Energie, IG BCE) – are supportive of a national minimum wage. The Food and Restaurant Workers’ Union (Gewerkschaft Nahrung-Genuss-Gaststätten, NGG), a long-time supporter of a national minimum wage (DE9911221N), and the United Services Union (Vereinte Dienstleistungsgewerkschaft, ver.di) have started a campaign for a national hourly rate of €7.50.

Effects of national minimum wage

On 26 July 2006, the Institute for Work and Technology (Institut Arbeit und Technik, IAT) published the results of a study on the projected effects of the introduction of an hourly national minimum wage of €7.50 based on data from the German Socio-Economic Panel (SOEP). The IAT found that about 4.6 million employees or 14.6% of all employees earn less than €7.50 per hour. On average, they would be entitled to a pay rise of €1.78 per hour if such a national minimum wage were introduced.

Women workers, in particular, would stand to gain from the introduction of a minimum wage. At present, 18.3% of all female employees earn less than €7.50 per hour. In fact, women would represent nearly two thirds of all those benefiting from such a national minimum wage; this also reflects the fact that it is women who are more likely than men to be found in low-paid jobs.

The services sector would be particularly affected by the introduction of a national minimum wage. In all, 80% of employees earning less than €7.50 per hour work in the services sector. At present, 61.1% of employees working in private households earn less than €7.50 an hour. In the hotel and restaurant sector, the percentage of workers benefiting from a national minimum wage would be 51.3%; in the motor vehicle repair sector, it would be 28.2%; in retail, it would be 25.5%; and in business related services, it would be 23.5%.

In very small establishments with less than five staff, a third of employees earn less than €7.50 and hence would benefit from the introduction of a statutory minimum wage, whereas in establishments with more than 2,000 employees, only about 7.7% of employees would benefit.

The IAT calculated that the additional labour costs for employers would be in the range of between €10 billion and €12 billion. This would, however, also benefit the public authorities, which would receive higher tax income and an additional €3.7 billion to €4.2 billion of contributions to the social security system. The IAT points to the fact that in September 2005 about 900,000 employees – of whom 280,000 are full-time employees – were entitled to additional social welfare benefits because of their low incomes.

Commentary

A recent publication on national minimum wages in Europe, which was edited by researchers of the Institute for Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) within the Hans Böckler Foundation (Hans-Böckler-Stiftung, HBS), reveals that only seven out of the 25 countries in the European Union do not have a statutory national minimum wage. The introduction of a statutory national minimum wage would be a landmark achievement in German industrial relations.

Heiner Dribbusch, Institute of Economic and Social Research, WSI