A minimum wage of twelve euros makes sense – economy

The minimum wage may seem like a marginal issue in the election campaign to some people. You think: who is it? A few poorly trained or just unlucky employees. But perhaps these citizens will think again when reading the data from the Federal Statistical Office. According to this, around ten million Germans earn less than twelve euros an hour. Ten million – and their families – benefit primarily when the statutory minimum wage increases significantly.

It is therefore right that politicians make it a major issue for the election, as was the case on Sunday in the televised debate of the chancellor candidates. Citizens are faced with a directional decision. The Union and the FDP want to leave the minimum wage to a commission as before. Since its introduction six years ago, it has raised the limit of what an employer must pay from at least 8.50 euros to 9.60 euros. The SPD and the Greens want to increase the minimum wage to twelve euros. It would make a huge difference for a lot of people.

Anyone who earns a minimum wage as a salesperson, waiter or office worker now earns 1,600 euros per month full time – before deductions. At twelve euros it would be 2000 euros. Anyone looking after children or paying rent in metropolitan areas would feel this clearly. It could also stimulate the economy. Those who earn more spend more. And minimum wage recipients in particular spend a higher proportion of their income than higher earners, for example, on which tax breaks some parties are focusing.

The reality was different. Unemployment in Germany continues to fall

The crucial question is whether a lot of jobs will be lost at twelve euros. No one would benefit from it then. Liberal market economists warned before 2015 against even introducing a statutory minimum wage at the level set at the time. The economy of the time, Lars Feld, predicted: “With a legal minimum wage of 8.50 euros, unemployment would increase considerably”.

The reality was different. Unemployment in Germany continued to fall. The bottom line was that the lower pay limit did not cost any jobs. Something else happened, according to researcher Christian Dustmann and his colleagues: Less productive and poorly paid jobs disappeared, but more productive jobs were created. The minimum wage not only helps low wages, it also has a positive effect on the growth of an economy.

Despite this great success, it is now worth considering which minimum wage increase is best for the country. From a minimum wage above 13 euros (the left claims exactly 13), the labor market begins to switch and there is a risk of significant job losses, warns economist Tom Krebs in a new study – in which he approves roughly twelve euros.

At least in the short term, this also plays a role in how the statutory wage limit is changed. It is best to do this in several stages. Timing is also important. When the minimum wage was introduced in 2015, the German economy had been growing for a few years – and it continued to grow in the following years. This made it possible to avoid job losses. Now the German economy is likely to grow significantly this year and next. But the country is emerging from the corona crisis. Unemployment has been falling for over a year, but only gradually. This argues in favor of a gradual increase in the minimum wage to twelve euros by the end of 2022. This is why it is right when, for example, the candidate for the chancellery of the SPD Olaf Scholz talks about making the increase first. year of a new government. That leaves time.

Union candidate Armin Laschet is in part categorically opposed to the increase in the minimum wage, in part he would like to leave it completely to the government commission. It must be said that the Commission itself is proposing an increase to 10.45 euros by mid-2022. Second, the Commission can be appreciated, but it does not need to be heroic. Employers and unions contribute their interests. And one of the two scientists there is Lars Feld, who classified the introduction of the minimum wage in 2015 as: “We’re doing way too well, that’s why we’re starting to mess around.”

Time has passed on this market radicalism. Minimum wages help limit the power of many companies that pay collectively agreed wages much less often than in the past. Many people who once belonged to the middle class also benefit from twelve euros, introduced with a sense of proportion. They earn more than today.

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