A number of objections are raised time and again when it comes to the minimum wage. For example, companies are expected to leave the market and unemployment will rise. A study has now evaluated labor market data from 2010 and 2018 and comes to a completely different conclusion.
Hundreds of thousands of jobs are at stake and there is a fear that companies will relocate – these were the prophecies of doom when the statutory minimum wage was introduced in 2015. Employers’ associations, including the Confederation of German Employers’ Associations (BDA), and Gesamtmetall, used similar arguments to resist The German Retail Association (HDE) also opposed the unscheduled minimum wage adjustment planned for October, which will benefit around 8.6 million employees who previously earned less than 12 euros gross per hour, most of them in their main jobs.
According to the Economic and Social Science Institute (WSI) of the Hans Böckler Foundation, 18.7 percent of the employees in Germany who are subject to social security contributions are low earners with a gross salary of less than 2,284 euros. Almost every fifth job is affected. Internationally, 60 percent of the middle income is considered a benchmark for an appropriate minimum wage level – Germany is currently a long way from that. With the “one-time adjustment” to 12 euros per hour, Germany would lose its role as a relative latecomer in international comparison.
“This plan does not stand for employment, but against employment,” claims HDE chief executive Stefan Genth, while BDA president Rainer Dulger criticizes the political setting of the minimum wage, calling it a “state wage” and threatening to file a lawsuit with the Federal Constitutional Court.
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The fact is, however, that the competitiveness of companies in Germany has by no means suffered as a result of the statutory minimum wage, but that productivity has actually increased overall, while at the same time purchasing power is growing enormously, as studies show.
Neither the introduction of the minimum wage at the beginning of 2015 nor its first increase in 2017 have led to the feared large number of companies leaving the market, as a current study by the Center for European Economic Research (ZEW) on behalf of the Minimum Wage Commission shows. Some sectors have even become more productive.
“The main aspect of our study was the increase in wage costs caused by the minimum wage and ultimately affecting the competitive conditions of companies,” explained ZEW expert and co-author of the study, Moritz Lubczyk.
The team analyzed the development of the company stock, company density, market entries and market exits of companies, the development of labor productivity and the development of market concentration. In order to be able to assess the developments, the data was used from 2010, i.e. well before the introduction of the minimum wage, until 2018.
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According to the study, some micro-enterprises with up to four employees in labor market regions where many employees previously earned less than 8.50 euros per hour gave up. This was particularly evident in eastern Germany, where the gross average wage in 2015 was significantly lower than in the west. However, as Lubczyk explains, it is more unproductive companies that are leaving the market. However, no increase in unemployment was recorded.
Not only did the minimum wage have little effect on market exits or company density. According to the study, labor productivity increased in sectors that were particularly affected by the minimum wage, such as betting and lotteries or the advertising industry.
This means that sales increased in relation to the workforce employed. “On the one hand, this can be related to the fact that companies are investing more in capital, i.e. machines or technologies, and thus using their workers more productively,” explained Lubczyk. In addition: “If mainly less productive companies leave the market, then the average productivity of the entire branch increases.”
In addition, purchasing power will increase by around 9.8 billion euros a year as a result of the increased statutory minimum wage, as calculated by the Eduard Pestel Institute for Systems Research in Hanover.
The statutory minimum wage was introduced on January 1, 2015 at a gross rate of EUR 8.50 per hour. The first increase took place at the beginning of 2017 to EUR 8.84. Since July of this year, the statutory lower wage limit has been EUR 10.45 gross per hour. This corresponds to the decision of the Minimum Wage Commission made up of representatives from employers, trade unions and science, which regularly adjusts the amount. On October 1st, due to a political decision, there will be an unscheduled one-time jump to 12 euros per hour. In addition, there are collectively agreed minimum wages in several sectors.
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