What is the Minimum Wage in Germany?

FT Contributor
A business standing with his arms crossed in front of the German flag.

Germany did not always enforce a country-wide minimum wage. Industry-specific minimum wages have existed for a long time, and the nation’s unions are relatively well-organized and effective at collective bargaining compared to those of other countries.

However, employers in several industries refused to cooperate with collective bargaining agreements, especially in the 1990s. Lower-paying jobs also became more common, so two member unions of the Deutscher Gewerkschaftsbund (DGB, “German Trade Union Confederation”) began demanding that the government introduce a legal minimum wage in 2002.

Other member unions did not initially agree that a legal minimum wage was necessary. It was not until 2006 that the DGB’s primary governing body, the DGB Federal Congress, decided to demand a legal minimum wage of €7.50 per hour. The DGB Federal Congress continued its campaign until the German Parliamentary elections in 2013, increasing its desired hourly wage to €8.50 per hour.

The German government finally enacted “Gesetz zur Regelung eines allgemeinen Mindestlohns, “Law Regulating a General Minimum Wage,” in 2015, establishing a country-wide minimum wage of €8.50 per hour. Most coalition partners, including the Christian Democratic Union of Germany and Chancellor Angela Merkel’s own Social Democratic Party, voted in favor of it.

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Minimum Wage in Germany 2020: €9.35 per hour

Germany’s minimum wage started at €8.50 per hour, increased to €8.84 in 2017, and later to €9.19 in 2019. As of January 1, 2020, the minimum wage in Germany is €9.35 per hour.

Reuters reports that the proposing commission factored in multiple variables into its calculations when deciding what the minimum wage should be in 2019, including an average wage growth of 4.8% between 2017 and 2018.

Several organizations are still campaigning for a higher minimum wage. The Social Democratic Party and Germany’s Finance Minister, Olaf Scholz, insists on a minimum salary of €12 per hour.

Exceptions to Germany’s Minimum Wage Law

Germany’s minimum wage law does not apply to some parties. These parties include interns participating in compulsory internships, apprentices, new employees within the first six months of their new positions after being unemployed for an extended period, and anyone under the age of 18.

Pros of Germany’s Minimum Wage Law

The United Services Union (ver.di) and the Union for Food, Beverages, and Catering (NGG) — the two original unions in the DGB that demanded a legal minimum wage — launched their campaign to ensure workers were not being paid unfairly. As mentioned previously, many employers refused to agree to unions’ collective bargaining, and the deregulation of the labor market and other political factors fostered the low-pay sector’s growth.

The NGG and ver.di specialize in industries that traditionally underpay their workers and are challenging to unionize, such as retail, hairdressers, hotels, restaurants, and more. Having a minimum wage in place is supposed to ensure that workers are compensated fairly for their time and are able to cover necessary living costs.

Cons of Germany’s Minimum Wage Law

Not everyone is on board with Germany’s minimum wage law, however. According to Reuters, Alexandra Fedorets from the German Institute for Economic Research (DIW) says:

“Many workers are still paid less than the minimum wage even though they are entitled to it. In addition, rising hourly wages don’t automatically translate into higher monthly incomes because many people, specifically the under-employed, work less hours and do so involuntarily.”

Many employers refuse to pay their employees the minimum wage, and enforcing this law has proven difficult. As of 2019, Finance Minister Olaf Scholz has plans to hire 1,400 minimum wage inspectors by the year 2022 to ensure companies’ compliance.

Though wages have risen, employers are also reducing the number of hours that employees work to reduce costs. A minimum-wage employee may earn €9.35 an hour, but this does not translate to a livable wage if they work significantly less.

In addition, Destatis reports that the number of minimum wage jobs is decreasing. On the one hand, Germany had 930,000 such positions in April 2018 when the minimum wage was €8.84 per hour, which is less than half of the 1.91 million minimum wage jobs the country had in 2015.

On the other, both Reuters and the London School of Economics and Political Science note that Germany’s minimum wage law did not negatively impact unemployment rates. In fact, unemployment levels fell in different German regions that previously had lower pay once the minimum wage law was introduced. Research from Nuremberg’s Institute for Employment Research and University College London found that Germany’s minimum wage has not resulted in significant job losses, but it may harm small businesses with lower profit margins.

Minimum Wage in Germany vs. the United States

The federal minimum wage in the United States is $7.25 per hour, but many states enforce a higher wage. Some states have approved legislation to gradually increase their minimum wages each year until they reach $15 per hour. In dollars, Germany’s minimum wage of €9.35 equates to $10.46 as of March 2020.

Individuals considering moving abroad, such as students from either country who will likely earn minimum wage for whatever positions they obtain, need to consider the costs of living in their intended destinations, such as affording an apartment. The truth is that neither country’s minimum wage is enough to live on.

The German Labor Ministry calculated that when the nation’s minimum wage was €8.84 per hour (approximately $9.38), a single person working 38 hours per week would earn €1,444 per month. After contributions to social insurance, tax, and other living costs, this individual would only have €339 left over for rent and heating. A person living alone would be living paycheck to paycheck, while single parents cannot get by without government assistance; €9.35 does not make a significant difference.

This predicament is similar in the United States. Costs of living are constantly rising while wages are not keeping up. According to the National Employment Law Project, a single adult will need to make a minimum of $15 per hour — a gross of $31,200 annually — to maintain an adequate living standard by the year 2024 nationwide.

People who earn minimum wage in both the U.S. and Germany are, understatedly, not in an ideal position. It is difficult to afford basic living costs, such as rent, food, and transportation while working for minimum wage as it stands between the two countries.

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