EZA 854 Report:

24 July 2008

24July08 GERMANY

Germany – compromise on minimum wages leaves decision to politics and courts

The draft law on minimum wages presented by the German government on 16 Jul effectively allows the extension of existing contracts to further industries.
Key elements are the conferring of binding validity to existing industry work contracts and the establishment of low pay commissions for non-unionised industries.
Among economists and the CDU/CSU the rules have been widely criticised for their negative impact on competition and job creation in the low income sector.
The immediate impact of the law may be limited; since legislation and preparation will consume most of the time ahead of next year’s general election.
The longer term impact, however, may be more significant, including an erosion of current wage setting structures.


Asset conclusion: no immediate impact, but negative signal against labour market flexibility and structural reform; reducing appeal of stocks for companies focused on Germany

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