Almost 2 million workers in Europe’s largest economy will get significant wage increases.
Following protracted coalition discussions, three German political parties agreed to create a new government on Wednesday, with left-leaning Social Democrat Olaf Scholz expected to succeed Angela Merkel as chancellor.
As part of the coalition agreement, the country intends to raise the minimum wage from €9.60 ($10.77) to €12 ($13.46) per hour.
According to Carsten Brzeski, an analyst at ING, the change may increase the income of approximately 2 million individuals in Germany who receive minimum wage rates or around 5 per cent of employees. The action, he added, was “obviously important.”
In July 2022, the minimum wage was already slated to rise to €10.45 ($11.72). The coalition agreement’s language does not specify when the larger one-time hike will take effect.
According to UBS analyst Felix Huefner, the measure could “increase overall wage growth” across the German economy, but it may “add to broader wage pressures.”
This week, Germany’s hardline central bank took the unprecedented step of openly condemning the legislation, describing it as “worrying.” It claimed that it would have a knock-on impact on higher-income people’s earnings.
Rising wages have been widely monitored by economists and policymakers throughout the world as a significant component of inflation. In Germany, inflation reached 4.5 percent in October, the highest level in nearly three decades, as energy prices skyrocketed and food prices rose.
In 2015, Germany became the first country to implement a nationwide minimum wage of €8.50 ($9.54).
Support for minimum salaries has increased throughout Europe as labor unions’ clout has waned. According to the European Commission, the proportion of EU workers covered by collective bargaining agreements fell between 2000 and 2015, with particularly sharp losses in Central and Eastern Europe.
A new draft EU rule proposed earlier this month aims to raise minimum salaries across the EU by imposing additional obligations.
“During the previous crisis, lowering minimum wages and dismantling sectoral collective bargaining was the harsh medicine prescribed to many member states,” EU Parliament member Agnes Jongerius, who sponsored the measure, said in a statement. “Now, we are fighting to increase statutory minimum wages and to strengthen collective bargaining in Europe.”
Germany already has one of the highest minimum wages in the European Union.
(Adapted from Reuters.com)