German Coalition Expected to Introduce National Minimum Wage

Conservatives are likely to agree to a minimum wage in order to stay in government.

German chancellor Angela Merkel’s conservatives are expected to agree to the introduction of a national minimum wage despite warnings from economists that it will lead to significant job losses in the formerly communist east of the country.

Handelsblatt newspaper reports that the Christian Democrats, who fell just five seats short of a parliamentary majority in an election last month, will agree to an €8.50 hourly minimum wage as demanded by the Social Democrats in coalition talks. In return, the leftists will not demand higher income taxes which had been their other key campaign promise.

Most workers who would immediately benefit from a federal minimum wage introduction are in former East Germany. Roughly a quarter of the workers there earns less than €8.50 per hour compared to some 10 percent in the states that composed the western Federal Republic of Germany before reunification in 1990.

The country’s leading economic institutes are skeptical. “A blanket minimum wage that applies to all sectors and all regions would probably have significantly more negative consequences for the labor market than the current sectoral deals,” they warn in a twice yearly report commissioned by the German government.

Unlike most other European countries, Germany relies exclusively on collective wage deals that are negotiated per region between employers and labor unions. Coverage by such agreements has decreased to 59 percent of the workforce from more than 70 percent in 1998, however, according to the Hans Böckler Foundation, which is aligned to the trade union movement. Low pay has surged especially in the wake of labor reforms that were enacted in the early 2000s — and which enabled Germany to weather the recent economic and financial crises with relatively low unemployment.

Critics fear that a federally mandated minimum wage will prompt companies in the east of Germany to move their operations across the border into the Czech Republic and Poland where labor costs are much lower.

But the Social Democrats must have at least one signature achievement to prevent them from suffering defeat in the next election as they did after the last time they joined Merkel’s parties in government. A vast majority of Germans favors another left-right coalition but many also say they see little difference between the two major parties anymore. Another “grand coalition” could further obscure the differences, to the Social Democrats’ detriment who face competition on the left from the Green party and the radical Die Linke.

Formal coalition talks began on Wednesday and are expected to last at least two weeks. Social democrat party members will be able to vote on whatever deal is reached which could put further pressure on their leaders to extract concessions from the right.