Well-intentioned but not thought through – minimum wage discussion in Germany

On the occasion of Labor Day, unions and left-wing parties demanded a general minimum wage in Germany of about €7.50 an hour which should be increased to €10 an hour the next years.

In the last years, minimum wages were introduced in a couple of sectors from commercial cleaning to postal services. The government declared the current collective agreements which were concluded by the employers and the unions as generally binding for the whole sectors. The criterion for this is that the collective wage agreement is valid for at least 50% of all employees of the sector before it is declared as the general minimum wage for the sector.

The problem with minimum wages is that they threaten people in unskilled jobs to become unemployed. There are about 1.9 million employees in Germany working for wages lower than the minimum wage in the postal sector in Germany which is €9.00 in the eastern part of Germany and €9.80 in the western part. If this minimum wage became a general minimum wage in Germany for all sectors – some unionists demand this – most of these 1.9 million people would loose their jobs. Minimum wages do most harm to those who seem to be protected by them. If someone’s work is worth less than these €9.80 either because there is no demand for the services he could offer at this price or because there are competitors doing the job for less.

Of course, I totally agree that everybody should be able to earn their keeps by the job they’re doing, but forcing them into unemployment is definitely not the solution. As many economists suggest, it would be much more effective to boost their incomes with state allowances but keep them at their jobs. The state should avoid paying people for doing nothing but enable them to work and support them if necessary. Besides, the welfare payments are the minimum wage level, because nobody would work for the money he could receive without working.

Actually, minimum wages are of use to some companies in certain sectors to be protected against competitors, either from the same country or from abroad. The minimum wage was the perfect opportunity for the Deutsche Post to conserve its role as the only letter deliverer after the expiration of their monopoly for letter service. Their two major competitors are struggling to remain in the business because their average pay was well below the now valid minimum wage. So, the minimum wage in the postal sector prevents competition and the public suffers from high prices for mail delivery.

Other industries are looking for protection from cheap competition, especially from eastern Europe. But they don’t consider that this step will encourage illegal employment.

To sum things up, minimum wages are neither social nor beneficial to anybody. People who lack of higher education have a worse perspective of getting a job, people who employed low-wage workers, e.g. elderly care, can’t either anymore afford these services or are forced to employ those illegaly and finally the state suffers from higher expenditures on unemployment compensation. Higher costs for the companies result in higher prices and finally in a fall in demand. So, forget the idea of minimum wages! Reducing labor costs will result in lower prices and higher demand. This will create more jobs and better living conditions for the people. And the money which would not anymore be required for unemployment compensation could be spend on helping those working hard but poorly paid to make them benefit, too.

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