Research highlights potential for substantial employment reductions upon minimum wage hike
Previous warnings have been issued about potential issues following an increase in the minimum wage, yet no major problems emerged. However, a direct leap from 12.41 to 14 euros could result in significant difficulties, as suggested by the Institute for Employment Research (IAB).
Approximately 20% of German businesses anticipate job reductions if the minimum wage rises from its current 12.41 euros to 14 euros. This conclusion is based on a study conducted by the IAB. The study further reveals that more than half of all enterprises would be directly impacted by a minimum wage of 14 euros, which is a marked increase from the impact observed when it was elevated to 12 euros in October 2022. According to Erik-Benjamin Börschlein, a researcher from the IAB, "It appears that a sudden increase in the minimum wage would have a clear impact on wage structures and employment expectations of businesses in Germany, at least in the short term."
This study is stirring up discussions on the minimum wage in both political and economic circles. For instance, the traffic light coalition (comprising the SPD and Greens) is advocating for a minimum wage surpassing 14 euros. Similarly, Federal Minister of Labor, Hubertus Heil, conveyed this expectation in a letter to the Minimum Wage Commission in early September. This commission, consisting of union and employer representatives, is required to present a proposal by mid-2025 on the extent to which the minimum wage should be increased starting from 2026. While the traffic light coalition is pushing for an increase, the FDP and major economic associations oppose a sudden increase, suggesting that the commission should handle the issue instead.
The study reveals that 58% of businesses in both West and East Germany employ workers earning less than 14.41 euros. The IAB questioned businesses about which groups fall into the lowest income brackets, earning the current minimum wage of 12.41 euros or slightly above it. There is a more frequent occurrence of the minimum wage being paid in the east, with 25% of businesses reporting such wages in the lowest income bracket. Conversely, only 18% of businesses in the west do the same.
The rarer the lowest income groups, the greater the likelihood of business expecting a decrease in employment if the minimum wage rises to 14 euros. Among businesses whose lowest paid employees currently earn the minimum wage, over a third anticipate a decrease in employment. In total, around 19% of surveyed businesses expect job losses if the minimum wage increases to 14 euros.
The IAB's study findings suggest that a rise in the minimum wage to 14 euros could lead to job reductions in approximately 19% of surveyed businesses. Further, this study has sparked debates within political and economic circles, with some, like the traffic light coalition, advocating for a minimum wage exceeding 14 euros.
