Minimum Wage Debate

To some, it might seem that the jobs held by those uniformed individuals keeping watch at a company entrance are to be envied. They don't seem to involve much stress and leave a good amount of time for magazine reading. But the envy would likely stop when the pay stub arrived.

Security firm jobs might often be low key, but they usually also involve very low pay. In eastern Germany, security personnel can receive hourly wages as low as 3.70 euros ($5.02).

That kind of pay is what Michael Sommer, the head of Germany's DGB trade union federation, referred to when he addressed trade unionists on May 1 and talked about millions of German workers in the restaurant and hotel industry among others eking out a living on "starvation wages." He demanded that Germany introduce a statutory minimum wage of 7.50 euros ($10) per hour.

His call has been taken up by others on the left side of the political
spectrum, and reignited a debate over whether Germany, now enjoying healthy economic growth, should follow the lead of 18 of the EU's 27 member states and introduce a comprehensive minimum wage.

But on the conservative side of the political divide and among employers' groups, a minimum wage is being called a job killer. They say regional and sector differences make a national minimum wage unfeasible since it would make labor too expensive.

"A minimum wage enshrined in law will destroy tens of thousands of jobs and promote illegal work," said Ingrid Hartges, managing director of DEHOGA, Germany's hotel and catering industry association, in a statement.

German Chancellor Angela Merkel has also come out against a minimum wage, saying she preferred to have collective bargaining practices strengthened instead.

Different approach

In the United States, a 16-year-old getting a job flipping burgers or running a cash register can be assured a certain, admittedly low, level of income due to the federal minimum wage law. In Germany, the system works differently.

Traditionally, wages in Germany are set according to industry-wide
collective bargaining agreements and detailed rules determine what kind of work receives what kind of pay. Because of the strength of trade unions in Germany, wage settlements were generally pretty favorable to workers.

While the American minimum wage, which dates from 1938, was put in place to keep employers from exploiting workers and giving them an income on which they could survive, Germany's generous social welfare system provided that protection. No one would work for wages that were under a certain level, because welfare benefits could give them a basic income.

"That has acted as a kind of virtual minimum wage," said Joachim Ragnatz, an economist at the Halle Institute for Economic Research.

But more and more holes have developed in that system. Welfare benefits have been cut back. Unions have lost clout and some sectors, especially in the service industry, have opted out of collective bargaining agreements.

"That means they do more or less what they want when it comes to setting wages," said Cornelia Hass, a spokeswoman for the ver.di services union. Without a minimum wage, she says, the downward pressure on wages keeps increasing.

"We need a minimum wage to provide a flank for our collective bargaining policy," she said

Study: Jobs will be lost

But conservatives just got some economic evidence to back up their opposition. A study just released by Ragnatz and Marcel Thum from the Ifo Institute for Economic Research says increasing the minimum wage to 6.50 euros per hour, as the Social Democrats have called for, would result in a loss of around 465,000 jobs. Raising it to 7.50 euros would kill around 621,000 jobs, according to the report.

Eastern Germany, still structurally weak but slowly recovering, would be especially hard hit, the authors say, because more people are employed in the low-wage sector there.

"The study proves what we have long warned about," said Saxony's conservative Premier George Milbradt. "The minimum wage would abruptly put the breaks on a job motor that's humming along."

Hass from the ver.di union calls that "nonsense, total nonsense," and points to the example of the United Kingdom, whose economy was not harmed by the introduction of a minimum wage in 1999.

But according to study author Ragnatz, most economists do agree that a minimum wage in Germany would result in job losses, and many advocate other models, such as having low wages topped up by the government. He said the pro and con arguments around the minimum wage are coming from two different places.

"Among economists, it's pretty clear what would happen," he said. "The debate on the other side has relatively little to do with economics, it's a discussion about justice."