CWS 3.0: April 9, 2014

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Germany Passes Minimum Wage But Not Everyone’s Happy

Last week German Chancellor Angela Merkel’s cabinet agreed on a legal minimum wage of €8.50 per hour, covering all sectors. The new wage floor will come into force on Jan. 1, 2015, nationwide.

Wage rates in Germany are typically set by collective bargaining agreements at the industry level between individual trade unions and employers’ organizations. This has traditionally been seen as one of the strengths of the German system as it usually keeps conflicts on pay and conditions at industry level, while, in the workplace, work councils can develop more cooperative relations.

An estimated 3.7 million workers are expected to benefit from the law. Aside from Germany, seven other of the 28 European Union Member States do not have a statutory minimum wage: Denmark, Finland, Austria, Sweden, Italy and Cyprus.

“The minimum wage is the most complex, momentous law that we have signed off on for decades in Germany,” Labor Minister Andrea Nahles said, after the draft law was agreed upon in the federal cabinet on April 2.

“The minimum wage is good news for people who work hard but cannot live off of it. All workers in all sectors will benefit from the minimum wage,” Nahles added.

The wage floor will be readjusted yearly, starting in 2018. A minimum wage committee consisting of employer and employee representatives will decide on the adjustments made. Researchers will advise the committee. The German government will be able to make the adjustment binding by regulation for all employers and workers.

There are, however, exceptions to the rule; namely the long-term unemployed during the first six months that they are back at work, those under the age of 18 who have not concluded vocational training, and those employed through internships, as trainees or voluntary workers.

Some claim that the exceptions violate the German Basic Law principle of nondiscrimination.

The German government claims the 18-year age restriction is necessary to avoid any disincentives for young people when choosing to complete vocational training before employment. A similar restriction can be found in the minimum wage policy of the United Kingdom, which has different minimum wage rates for those under the age of 18, between the ages of 18 and 20, and aged 21 and over.

Brigitte Pothmer, Green Party spokesperson for Labor Market Policy, commented: “The minimum wage is coming, that is the good news. The bad news is it does not come for everyone but rather as a two-class system because Minister Nahles’ draft law presents clear deficiencies. There are significant gaps that threaten comprehensive protection for workers against wage dumping.”

“Exceptions for long term unemployed people from the minimum wage are an example of this. They are the sacrificial pawns in the minimum wage quarrel between the social democrats (SPD) and the Christian democrats (CDU),” Pothmer added.

The subsequent impact on the German labor market is as of yet undetermined. The pre-existing collective bargaining agreements that do not currently pay workers, what will soon be, the legal minimum wage will need to be renegotiated prior to the start of 2015.

Businesses in Germany are also chaffing at the top-down decree mandated by the Federal Government, interfering in what has traditionally been a negotiation between employers’ organizations and social partners on an industry, and state, level.

It is not clear yet how the Federal Government intends to monitor and enforce the new minimum wage.