Berlin The sharp increase in the statutory minimum wage to twelve euros has significantly increased purchasing power in the low-wage sector in Germany, despite the high rates of price increases. In many other countries, however, the adjustment of the lower wage limit was not sufficient to compensate for inflation.
This emerges from the new International Minimum Wage Report by the Economic and Social Science Institute (WSI) of the trade union-affiliated Hans Böckler Foundation. According to this, the hourly wages of employees who worked for the minimum wage rose by 12.4 percent between the beginning of 2022 and the beginning of 2023, adjusted for inflation.
Employees benefited from two increases at the same time. In July 2022, the lower wage limit rose from EUR 9.82 to EUR 10.45. This step was still based on the decision of the independent Minimum Wage Commission, which was made up of representatives from employers and trade unions.
The federal government then increased the minimum wage by law to twelve euros from October. Overall, it rose by a good 22 percent from January to October 2022.
The resulting real increase in wages is not even remotely matched in any other EU country. After Germany, securing purchasing power was most successful in Bulgaria, where only 6.5 percent remained of a strong nominal minimum wage adjustment of 20.4 percent. In Latvia it was 5.8 percent in real terms, in Romania 5.0 percent and in Belgium 4.8 percent.
In almost half of the 22 EU countries with minimum wages, employees suffered a real loss of purchasing power within a year, despite double-digit nominal increases in the wage floor in some cases. These were strongest in Estonia (minus 6.7 percent), the Czech Republic (minus 6.2 percent) and Slovakia (minus 3.4 percent). On average (median), minimum wages in the EU were nominally increased by twelve percent, of which only 0.6 percent remained after deducting price increases.
Successful fight against inflation by raising the minimum wage
At 12 euros an hour, Germany has now risen to second place in the EU behind Luxembourg, where companies have to pay their employees at least 13.80 euros. Previously, the Federal Republic had always ranked sixth since the introduction of the minimum wage.
A wage floor that is at least 60 percent of the average wage (median) in the respective country is considered poverty-proof. According to updated data from the industrialized countries’ organization OECD, Germany is now likely to have just exceeded this threshold, writes the WSI.
According to the European statistical office Eurostat, Germany only has 53.2 percent. The differences can be explained by the fact that the OECD and Eurostat use different weekly working hours to calculate the median wage.
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The WSI researchers Malte Lübker and Thorsten Schulten write that in Germany the fight against inflation among low-income earners has been successful thanks to the sharp increase in the minimum wage. However, this is only a snapshot.
Because the next minimum wage adjustment is not planned until January 2024, part of the growth will be eaten up by the persistently high inflation this year. Employees in France, the Netherlands and Belgium, on the other hand, benefit from the fact that the wage floor there is also increased during the year.
The co-chairman of the SPD-Left, Sebastian Roloff, therefore brought a further increase in the minimum wage into play. “We must continue to provide relief to those who are hit hardest by inflation. Increasing the minimum wage would be an effective measure for this,” the member of the Bundestag told the Handelsblatt.
Roloff also believes that a reduction in VAT on everyday products makes sense. “For the necessary counter-financing, one can also talk about higher burdens for the particularly wealthy in our society,” he said.
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The President of the Munich Ifo Institute, Clemen Fuest, rejects sales tax cuts to relieve needy groups. It was unclear whether and to what extent the tax cuts would be passed on to consumers, Fuest told the Handelsblatt.
In addition, the vast majority of consumers are not in need, but still benefit from the tax cuts. “The state loses a lot of tax revenue in order to achieve a relatively small relief effect for people with low incomes.”
Federal government does not want to increase the minimum wage again by law
Fuest is also critical of a possible minimum wage increase. He recalled that the minimum wage had been gradually increased over the course of 2022 from 9.82 euros per hour to 12 euros, i.e. by around 22 percent. “This means that minimum wage earners are among the few groups in Germany that achieve real income growth.”
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The federal government had already emphasized that the statutory increase in the lower wage limit to twelve euros should be a one-off affair and then the independent minimum wage commission will take over again. The committee, made up of equal numbers of employer and employee representatives, must decide on the adjustment as of January 1, 2024 in the summer. It is based, among other things, on wage developments.
However, since this is currently lagging behind the price development, the adjustment mechanism would have to be revised if purchasing power is to be maintained, write the WSI researchers. The often reflexive argument that minimum wage increases would exacerbate inflation dynamics is misleading.
On the one hand, given their low level, minimum wages usually only have a relatively small impact on wage developments overall. On the other hand, rising nominal wages only contribute to inflation to the extent that companies react to the resulting cost increases with price increases.
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