21 February 2008

EZA 832 Report: Germany

21Feb2008 – Minimum Wages

Labour market re-regulation through the backdoor

The move towards a general minimum wage – a key SPD policy objective – gained fresh momentum from the success of the Left party in recent state elections.
Even some employer associations seem to sympathise with legally binding minimum wages, expecting a lowering of competition, as seen in the postal sector.
While the SPD’s initial objective was the introduction of a general minimum wage (around €7.5 per hour), CDU reservations have shifted the debate towards industry-specific minimum wages.
Given the aim for minimum wages in low skilled professions, minimum wages are likely to hinder increased flexibility in the labour market and the propagation of a low wage sector both demanded by national and international economists.


Asset conclusions: lower labour market flexibility undermines prospects for domestic demand, hence bad for consumer stocks. Good for monopoly profits of firms concerned.

© EZA