12 euros minimum wage – who benefits from it and does it cost jobs?

Traffic light promise
Twelve euros minimum wage – who benefits and does it cost jobs?

Millions of employees benefit from a higher minimum wage

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The SPD, Greens and FDP want to raise the statutory minimum wage significantly to twelve euros. Who would that be of particular use – and what do economists say about the plan?

The coalition negotiations have not yet officially started, but the SPD, the Greens and the FDP have already clearly agreed on one point during the explorations: the minimum wage is to rise to twelve euros per hour in the first year of a new traffic light government. Normally the liberals would scream outraged on the issue, but in order to get other core issues through, they are ready to fulfill this election promise made by the SPD and the Greens.

And without compromise. Because unlike the announced abolition of Hartz IV, which could turn out to be a sham, there is no back door here: twelve euros is twelve euros, there is little to be shaken about. The mood among social associations and employee representatives is correspondingly good, while the other side is alarmed: Employer President Rainer Dulger considers the step to be “extremely dangerous” and complains about “a serious interference with collective bargaining autonomy”.

But what exactly does a minimum wage of twelve euros mean and what are the consequences?

How big is the step?

A statutory minimum wage of twelve euros an hour does indeed mean a significant improvement in the status quo. The minimum wage is currently EUR 9.60. On January 1, 2022, it is expected to rise to EUR 9.82 and on July 1, 2022 to EUR 10.45. This is what the minimum wage commission recommended and the current federal government followed suit.

The plans of the new traffic light coalition are therefore well above what the Commission recommended. The committee was brought into being with the introduction of the statutory minimum wage in 2015 and consists of three representatives from employers and trade unions, as well as an independent chairman and two economists who are not entitled to vote.

Who will benefit from a minimum wage of twelve euros?

Raising the minimum wage to an hourly wage of twelve euros would bring about eight million employees directly more wages – and should also have a positive effect on wages that are slightly above twelve euros. This is what the Mannheim economists Tom Krebs and Moritz Drechsel-Grau calculated in a study for the union-related Hans Böckler Foundation.

The SPD-led Federal Ministry of Labor is even assuming ten million people who would benefit from the higher minimum wage. These include mainly mini-jobbers, but also regular employees who are subject to social security contributions. Even people who are already paid under a collective agreement could get more money because the hourly wages in retail, agriculture or the hotel industry are sometimes lower. Employees in the areas of personal care, gastronomy and food sales could also look forward to more money.

A study by the Institute for Economic and Social Sciences (WSI) emphasizes another aspect: a higher minimum wage benefits women in particular. Because they work disproportionately often in badly paid jobs, often in connection with part-time, as study author Malte Lübker explains. He evaluated the salary information of 200,000 employees from the Lohnspiegel.de portal. Hairdressers, bakery salespeople and florists, but also retail clerks, legal clerks, dental assistants and mechatronics technicians would particularly benefit from a minimum wage of twelve euros.


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Does the higher minimum wage cost jobs?

The classic economic theory says that a statutory minimum wage costs jobs and drives unemployment up. For many employers it is simply not worth paying more money for low-wage jobs than they would voluntarily. The Canadian David Card, for example, has shown through empirical studies of wages in US fast-food restaurants – for which he has only just received the Nobel Prize – that this does not have to happen in reality.

In Germany, too, the introduction of the statutory minimum wage in 2015 did not lead to the upheavals on the labor market that critics feared. The number of mini-jobs fell, but the number of employees subject to social security contributions rose – and there weren’t any more unemployed. The question that remains is how much the minimum wage should be so that there are no negative economic effects? After all, when it was introduced six years ago, it was a meager 8.50 euros.

Many economists in Germany also consider twelve euros not to be too much. For example, the President of the German Institute for Economic Research (DIW), Marcel Fratzscher, declared shortly before the election that he believed the demand for a minimum wage of twelve euros to be absolutely correct. The increase would bring “the greatest social improvements” for millions of people and “probably cost few jobs,” said the economist. In addition, the step brings more tax revenue through additional economic activity, higher incomes and thus higher consumption. “A minimum wage of twelve euros would make sense from any point of view,” said Fratzscher.

The “economy” Achim Truger recently spoke out in favor of a gradual increase to twelve euros by the beginning of 2023. And Lars Feld, the former chairman of the economy and one of the two scientific advisors in the minimum wage commission, also considers the increase to be justifiable. “The twelve euros would probably be reasonably manageable for the economy,” Feld told the “Handelsblatt”. His concern is rather that politics in the fight for voters on the minimum wage will lose its temper in the future if the minimum wage commission is simply ignored. However, the traffic light parties have also stated in their exploratory paper that the jump to twelve euros is a “one-time adjustment” – and that the minimum wage commission should then take over again.

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