Breaking a German Taboo: Minimum Wage Dictated by the State

Breaking a German taboo: minimum wage dictated by the state

The way is clear for minimum wage to be raised to 12 euros beginning in October. The Bundestag passed the corresponding bill on June 3, 2022, and the Bundesrat approved it on June 10, 2022. This means that the minimum wage in Germany, which was still 9.82 euros in January 2022, will have increased by over 20 percent within ten months. This could become a real challenge for individual sectors and companies, and is likely to further fuel the wage-price spiral.

However, the breach of taboo weighs more heavily. Until now, it has not been the legislature that has set the lower limit for paid work, but the Minimum Wage Commission, which is supposed to make decisions independent of political influence. In addition to the chairman, the committee includes three representatives from the unions and three from the employers, as well as two advisory scientists. In principle, the legislature can only accept or reject the decision of the Minimum Wage Commission, but it cannot adjust it.

The politically motivated increase of the minimum wage will render a large number of existing collective agreements obsolete that are below the 12 euros mandated by law. This also applies to pay grades that are currently above the minimum wage, because here the wage gap requirement will result in wage increases. This will increasingly lead to the erosion of collective wage commitments, because why should employees still organize themselves in associations and unions in the first place?

According to government plans, the Minimum Wage Commission will continue to decide on future adjustments. However, a key issues paper published by the German Federal Ministry of Labor and Social Affairs (BMAS) and the German Federal Ministry of Finance (BMF) not only proposes raising the minimum wage to at least 12 euros in 2022, but also calls for its further development into a “living wage”. This means that the future minimum wage should be based on average income and should not be below 60% of the median wage .

The next decision of the Minimum Wage Commission is scheduled for June 30, 2023 – for the increase level January 1, 2024.