20% earning less than 7.50 an hour in East Germany

The unions and the German Left are currently calling for a minimum wage of 7.50 Euro an hour. A study carried out by the “Socio-economic Panel” at the Institute for Economic Research in Halle (IWH) showed that in the year 2006 almost 20% of employees in East Germany and about 8 percent in the West earned less than 7.50 Euro an hour. Nevertheless, the IWH experts warn against increased unemployment as a consequence of a minimum wage.

Assuming a 40-hours-working week a minimum wage of 7.50 Euros per hour would correspond to a gross salary of 1300 Euros per month. In the year 2000, 25% of employees in the East and 9% of employees in the West were within this salary group. In France, which has a social system comparable to the German one, 16.8% of employees received the French minimum wage of 1254 Euros per month. In Spain, however, the monthly minimum wage amounts to 666 Euros which was received by less than one percent of employees in the year 2005.

It is not clear how the labour market would react, if a minimum wage was introduced in Germany. The experts of the IWH warn that those employees currently receiving less than the minimum wage are at the risk of losing their jobs. This would in particular apply to poorly skilled people. If the minimum wage were not compensated for by their productivity, then they might actually be made redundant.

Companies might also react to the introduction of a minimum wage by having employees work longer hours without extra pay. This in turn would lead to some of employees losing their jobs.

It cannot precisely be predicted how the labour costs of companies would be affected by the introduction of a minimum wage. If these costs increase, companies will try to raise prices in order to keep their revenues. As a consequence, the general price level would increase and real income in turn decrease. Thus, the socio-political objective of existence-securing wages for all employees would once more not be reached, warn the experts. GERMAN