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Germany Passes New Bill On A Higher Minimum Wage To Tackle Inflation

On Friday, June 3rd, the lawmakers in the lower house of Germany's Parliament have passed a bill that increases the already existing minimum wage in the country to a level of 12€ (which corresponds to 12.90$) per hour; this means an increase of €2.18 per hour from the latest legislation. The bill will get its final approval in the upper house of parliament on Friday the 10th, and it is supposed to enter into force by October 1st.


Minimum wages have been a frequent topic of discussion in European countries, but why are they so important? Minimum wages are defined as "the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract," according to the International Labour Office of Geneva.


These types of systems are designed to sustain other policies, like the ones related to employment or social cohesion; Hence, minimum wages are, in fact, never used as individual tools but always in coordination since they fall under the umbrella of possible policies to tackle inequalities in the labor market, employment issues, and sustainable working environments and conditions.


Many unions and politicians sustain that this minimum wage has the power to reduce poverty in Germany; on the other hand, some employers are complaining that this bill is an intrusive interference of the government in the environment of the established negotiations between employers and employees and unions.


It is not a coincidence that this policy comes at a moment of exceptionally high inflation in Germany. According to the German statistical agency "Destatis," prices in Germany have increased by 7.9% in May 2022, which is the highest increase since the German reunification. This wage increase is expected to help low-income workers cope with surging costs for food and heating. The war in Ukraine and rising energy prices are the main reasons behind the record level of inflation, and these trends can be recognized in most European States.


 


The number of workers that are supposed to benefit from this new regulation in Germany is 6.2 million; for a current wage of around €1700 per month, €400 will be added extra to the monthly income. According to Labor Minister Hubertus Heil, this legislation will benefit women and people in the formerly communist eastern states.


This policy has been a critical point in German Chancellor Olaf Scholz's election program. It is important to remember that Germany first introduced a national minimum wage in 2015, specifically under the pressure of Scholz's center-left Social Democrats party. Four hundred members of the lower chamber of the Bundestag voted in favor of the law proposal, with only 41 votes against it and an abstention of 200 people (which is relatively high). Those abstaining came from Christian Social Union and the Christian Democrat Union.


It is essential to underline that this policy doesn't apply to the totality of the workers. Some categories like apprentices, workers taking part in job-promotion schemes, long-term unemployed people in the first six months after re-entering the labor market, and self-employed individuals are not covered by the minimum wage law.


Comparing it to the situation in the other European States, Germany has one of the highest minimum wages in the European Union. The current rate is €9.82, which is supposed to rise to €10.45 from July 1st. That means that an employee with a full-time job would gross at least €1,621 a month; this number is just behind the one of Luxembourg, which has the highest minimum wage at €2,257 per month, followed by Ireland's €1,775, the Netherlands' €1,725 and Belgium's €1,658.


With a €12 minimum per hour wage Germany would jump to the second position in this chart. Many European countries don't have a national minimum wage: this is the case of Denmark, Italy, Austria, Cyprus, Finland, and Sweden. 


Image credits: Expatica


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Tags: Economy Inflation Germany Wages



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