NCPA - National Center for Policy Analysis


January 9, 2008

Germany faces the prospect of massive job losses if plans for minimum wages become a reality, according to Bert Rürup, professor of economics at the technical University of Darmstadt and chairman of the German government's advisory "committee of wise men."


  • Kurt Beck, chairman of the Social Democratic Party of Germany (SPD), is calling for the level to be set at €7.50 (about U.S. $11.00) an hour.
  • Prime Minister Angela Merkel recently agreed to impose a €9.80 (about U.S. $14.40) an hour legal minimum pay on the postal sector last month, warning employers more sectors would follow unless service sector pay rose.
  • But Rürup, an SPD member, said both approaches -- a €7.50 universal minimum wage or a sector-specific approach -- were wrong because they would impose excessive pay levels.

The answer, said Rürup, would be to introduce a statutory hourly minimum wage of €4.50 (about U.S. $6.60), a level equivalent to the most basic form of unemployment benefits, which he calls an "implicit" minimum wage.  This, he said, would remove the incentive for employers to pay their workers less than basic income support, knowing that this entitles them to top-up benefits -- a practice now current in the services sector that is costing the states billions of euros a year.

"That's how it works in the United States and the United Kingdom, where you have negative income tax, but it's something nobody in Germany really understands yet."

Source:  Bertrand Benoit, "Warning of Job losses if minimum pay adopted," Financial Times, January 8, 2008.


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