On October 1, 2022, the statutory minimum wage will increase to twelve euros per hour. – Copyright: Picture Alliance
This Saturday, October 1, 2022, the statutory minimum wage in Germany will rise to twelve euros per hour. “For millions of people, this is the biggest salary increase of their lives,” says SPD parliamentary group leader Carola Riemann. This is unlikely as the 2022 minimum wage is set to rise 25 percent from late last year. This is also a risk, because high income for the approximately 6.6 million employees are also high costs for thousands of companies. Economists expect that an increase in the minimum wage will further fuel inflation. The consequences of a minimum wage for the labor market are unclear.
But what is the minimum wage anyway? For whom does this apply – and for whom does it not? Why is the minimum wage rising so much now? What are the possible outcomes? What happens to mini jobs? We answer the most important questions about “one of the largest social reforms in the history of the Federal Republic” (Carola Riemann).
Definition: What is the legal minimum wage?
The statutory minimum wage is the minimum wage that employees should receive. It therefore defines a wage floor for companies, whether private or public, whether social institutions or trade unions. All must pay all employees at least twelve euros gross per hour worked.
Employees, on the other hand, are not allowed to work less than twelve euros per hour. This also applies if employees cannot get work at this hourly rate. Then you should remain unemployed.
In addition to the statutory minimum wage, there is a collectively agreed minimum wage in many regions. They are always above the statutory minimum wage and are negotiated by collective bargaining partners.
How has the minimum wage developed in Germany?
The statutory minimum wage was introduced in Germany in 2015. At first it was 8.50 euros per hour. The minimum wage has increased several times over the years. At the end of 2021 it was 9.60 euros. There have been three increases this year: from January 1st to €9.82, from July 1st to €10.45 and now from October 1st to €12.
Who sets the statutory minimum wage?
With the introduction of the statutory minimum wage in 2015, a process of regular adjustment was established. Every two years, an independent commission of the federal government’s collective bargaining partners proposes how the minimum wage should be raised. It really should remove the minimum wage from political interference. On the recommendation of the social partners, the minimum wage was also raised to 9.45 on July 1st. In the federal election campaign, however, the SPD campaigned for a minimum wage of twelve euros. A coalition of SPD, Greens and FDP then implemented this election promise. In the future, the Minimum Wage Commission will again propose an increase. However, it can be assumed that the minimum wage level will now be the subject of frequent election campaigns.
The next adjustment of the minimum wage is to take place again on January 1, 2024 at the suggestion of the Minimum Wage Commission.
Who does the increase in the minimum wage apply to?
According to calculations by the German Federation of Trade Unions, 6.64 million employees will be affected by the increase in the minimum wage. That is then 17.8 percent of all employees in Germany. There is a clear difference between west and east. In the old federal states, 5.18 million people are affected, which is 16.1 percent of all employees here. The total number of people in employment in the new federal states is 1.46 million or 29.1.
This interactive map shows you how many people in your area are affected by the new minimum wage.
According to the Institute for Labor Market and Occupational Research (IAB), the minimum wage will apply to twice as many people as introduced in 2015 after the increase. Then it would be around 18 percent of all employees in the west working, in the west up to 29 percent, with political affiliations, with a fixed salary.
According to the trade union Hans Böckler Foundation, of the 6.64 million whose hourly wages have so far been less than twelve euros, 2.55 million are full-time employees, 1.8 million part-time employees and around 2.3 million people who only have mini-jobs .
For them, incomes are sometimes rising rapidly – provided their companies can afford the higher costs and keep their jobs.
What are the consequences of the minimum wage for prices?
for employees Minimum wage increases income. Anyone who works full-time and has already received the old minimum wage will receive an additional 270 euros a month from October. This year’s growth of up to 25 percent is well above the normal inflation rate of around eight percent. However, the actual increase in the cost of living tends to be higher for lower income groups as they spend a higher proportion of their income on energy and food. Nevertheless, the new minimum wage should lead to an increase in real incomes. “The increase in the minimum wage is helping to stabilize purchasing power,” says union labor market expert Torlf Push. The DGB assumes a purchasing power advantage of 4.8 billion euros.
for affected companies But the costs are increasing. “Many companies are increasing their prices as of October 1 due to the increase in the minimum wage,” wrote Ifo labor market expert Sebastian Link in an analysis of a survey by the Ifo Institute. In it, most of the affected companies said they would raise their prices in response to the minimum wage. “This should further fuel already high inflation,” Link wrote.
The Bundesbank sees the increase in the minimum wage as a factor in its forecast that the fall in inflation in Germany will increase by more than ten percent. Gains in purchasing power are thus partially offset by higher prices.
Employee Still faced with further restrictions. 18 percent of the affected companies want to reduce the working hours of minimum-wage employees in order to save costs. Another 18 percent are examining the deduction of additional salary components such as special payments, bonuses and benefits in kind. 21 percent want to reduce their spending on further education.
And: 12.7 percent of the affected companies also want to cut jobs as a result of the increase.
What are the consequences of the minimum wage for the labor market?
The consequences of the minimum wage for employment have always been controversial. All employees who previously earned less, although they generated more value for the company, benefit from the statutory minimum wage. However, employees who can find a job at their previous wages but who are too expensive for the high minimum wage are disadvantaged. They no longer get jobs and have been thrown back on state welfare.
Which effects stand out depends, of course, on the amount of the minimum wage, but also on competition and the economy. The introduction of the minimum wage in 2015 fell into a phase in which, firstly, the labor shortage increased and, secondly, the economy continued to grow. The latest studies by the Center for European Economic Research (ZEW) show that the introduction of a statutory minimum wage in Germany had no negative impact on employment. However, with the looming recession and an increasingly volatile labor market, the risk of losing their job is increasing, especially for low-income earners.
What else will change as a result of the minimum wage – for example for a mini-job?
An increase in the minimum wage leads to a change in the wage structure. This announcement alone has led to an increase in wages and salaries, especially above the minimum wage.
With the minimum wage, the income limit for social security-free mini-jobs also rises from 450 euros to 520 euros. The idea behind it is as follows: The statutory minimum wage applies regardless of the scope of employment – and thus also for mini-jobs. In order to enable mini-jobs to work ten hours a week with minimum wage, the mini-job limit will be raised to 520 euros on October 1st. In the future, this will be adjusted to the development of the minimum wage according to the ten-hour rule.
Employers must record the working hours of mini-jobbers and be able to submit them for review for two years.
Exceptions to the statutory minimum wage: who is not entitled?
The minimum wage applies to all adult workers. However, there are exceptions:
Apprentices according to the Vocational Training Act,
volunteers and volunteers,
Participation in a measure to promote employment,
Long-term unemployed within the first six months after re-entering the labor market.
employees in workshops for the disabled,
Who regulates compliance with the minimum wage?
The control is accompanied by the customs financial control for undeclared work (FKS), with a collectively agreed minimum wage in the region.
Violations can be punished with a fine of up to 500,000 euros. A violation of the obligation to document working hours can be punished with a fine of up to 30,000 euros. In addition, companies can be excluded from public contracts.