This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article discusses the subject matter of minimum wage with Germany as its backdrop. 

It has been published by Rachit Garg.

Introduction 

A legislative minimum wage was not established in Germany until 2015. The new salary floor was initially set at an hourly rate of €8.50. Around 11% of German employees were paid less than that when it was first implemented. One of the most contentious topics in labour market economics is the minimum wage. There has been a tremendous amount of international empirical research on its effects over the past few decades. Germany’s general statutory minimum wage was only implemented on January 1, 2015. It provides a singular but noteworthy illustration of a salary barrier being implemented nationally in a sizable industrialised nation. This article discusses the concept of minimum wage with respect to Germany, alongside the possible ups and downs it has been through in the Western European country. 

All about minimum wage in Germany

The minimal amount of compensation that an employer is compelled to pay wage earners for work completed during a certain period and that cannot be decreased by a collective agreement or an individual contract is known as a minimum wage. 

The Gesetz zur Regelung eines allgemeinen Mindestlohns, enacted by Angela Merkel’s third cabinet, a coalition of the Social Democratic Party of Germany (SPD) and the Christian Democratic Union of Germany (CDU), on January 1, 2015, established the minimum wage in Germany. As its key political pledge for the 2013 federal election campaign, the introduction of a minimum wage was the SPD’s main demand during coalition negotiations. Prior to 2015, Germany only had minimum salaries in a few industry-specific sectors, some of which were below the new minimum wage level.

The starting hourly minimum wage was 8.50 euros before taxes. Since then, the Minimum Wage Commission in Germany (Mindestlohnkommission) has proposed changes to the minimum wage level on a regular basis. Last time, it was raised to 10.45 Euros per hour before taxes. Because of inflation, this salary in August 2022 was equivalent to 8.64 Euros in January 2015. The German minimum wage will increase to €12 per hour on October 1, 2022, after the Bundestag approved the increase on June 3, 2022, by a vote of 400 to 41 with 200 abstentions. However, there are still exceptions to the pay minimum for interns, workers who are enrolled in a vocational programme, volunteers, young people, and long-term unemployed people.

It is crucial to be clear about certain factors when defining minimum wage. It is essential to note which components of a salary can be included while determining the minimum wage, the degree and circumstances of payment-in-kind authorization, how the minimum is determined for employees receiving piece rate pay, and if the minimum is an hourly or monthly rate.

Germany did not have a minimum wage until 1st January 2015, so there was no required minimum wage for employees there. A fair living wage must be negotiated directly with the employer through collective bargaining or another negotiation process. 

Need for minimum wages in Germany

The goal of minimum wages is to shield employees from unfairly low pay. They contribute towards ensuring that everyone receives a fair and equal share of the benefits of progress and a decent wage for all working people and those in need of such protection. A policy to combat poverty and lessen inequality, especially the one existing between men and women, can also include minimum wages as one of its components. In order to complement and strengthen other social and employment policies, such as collective bargaining, which is used to establish terms of employment and working conditions, minimum wage systems should be defined and created in a rational manner.

The minimum wage, which was first set at €8.50 an hour, had a direct impact on the pay of about 4.0 million workers who were already making less than that amount. This translates to roughly 11.3% of the dependent workforce, with notable regional variations. 9.3% of workers in Western Germany made less than €8.50, but 20.7 percent of workers in Eastern Germany did. The new German minimum wage in 2015 (48%) was about equal to that in the UK (49%) and the Netherlands according to the Kaitz index, which quantifies the link between the minimum pay and median wage (46 percent). Since it was first introduced, the minimum wage has increased twice. It had grown to €8.84 an hour by January 2017 and to €9.19 in January 2019. There was another hike, to €9.35, by January 2020.

Effects of raising the minimum wage in Germany

Impact of welfare

First, employers might not honour the minimum wage regulation. For instance, firms frequently give employees under-the-table compensation supplements, also referred to as “envelope payments”, in nations with sizable shadow economies in order to avoid paying taxes or the cost of providing benefits. In this case, the company could respond to a rise in the minimum wage by lowering envelope payments while maintaining the employee’s base pay. Second, even when minimum wage laws are strictly followed, additional income may be subject to high social security and employment taxes, which would lessen the impact of a rise in take-home pay.

Impact on employment

The discussion over minimum wage legislation revolves around the possible effects on employment, which is still a hot-button issue. On the one hand, in competitive marketplaces, some businesses will be unwilling to pay higher salaries and will fire employees if the minimum wage is implemented and raise salaries over the going rate. However, markets might not be highly competitive. For instance, a business that dominates a market may be able to set lower salaries than would be the case if there were competition. In this situation, a minimum wage can increase worker wages without affecting employment. Indeed, increased pay may draw in more workers, increasing employment. Nevertheless, there seems to be a growing understanding that a moderate minimum wage has a marginally negative effect on employment. In general, recent research has found that raising the minimum wage has little to no impact on employment. However, particularly vulnerable populations, such as young and low-skilled employees, may suffer.

Impact on inequality

Reducing income inequality by enhancing the livelihoods of a lot of individuals at the bottom of the wage distribution is another major driver of minimum wage regulations. According to empirical studies, raising the minimum wage tends to reduce pay gaps, but only when combined with other policy measures that significantly reduce poverty. However, the impact of minimum salaries is constrained. They can result in considerable employment losses and have perverse distributional effects if they are set at a higher level. As jobs for low-income workers disappear, inequality will grow.

How is minimum wage calculated 

The method used frequently to assess the effects of the minimum wage is known as the difference-in-differences approach. This method compares a treatment group that is impacted by the implementation of the minimum wage to a control group that is not impacted in order to identify causal impacts. This has typically meant comparing adjacent (or, in recent years, distant as well) but similar states or counties, where the minimum wage was raised in one and held steady in the other, in the United States, which can be viewed as the hub of contemporary minimum wage research. This “ideal-type” method cannot be used in Germany because the minimum wage is virtually universally applicable.

Two modified difference-in-differences approaches have so far been utilised, particularly in light of research from the United Kingdom, whose implementation of a national minimum wage in 1999 encountered comparable methodological difficulties. First, a method known as the incremental difference-in-differences technique was used, which considered the different minimum wage relevance across different locations, industries, businesses, and professions. This method analyses, for example, locations affected by the new minimum wage in different slices (i.e., proportions of workers) while holding other variables, such as the region’s economic structure or purchasing power, unchanged.

How is Germany’s minimum wage set

Since the first of January 2022, the statutory minimum wage in Germany has been 9.82 Euros per hour. In terms of maths, this equates to a monthly minimum salary for full-time work of 1,621 Euros (in gross terms). According to data from the Federal Statistical Office (Destatis), the current minimum wage is equal to 48% of the median gross wages for all full-time workers. The EU is making an attempt to raise each country’s minimum wage to at least 60% of the median gross income. The steps involved in setting up a minimum wage in Germany have been laid down hereunder: 

1. In Germany, a commission made up of both employer and labour representatives often recommend the minimum wage. 
2. On the basis of these proposals, the lawmakers then pass legislation. However, for this rise, the government omitted the commission and decided on the €12 threshold on its own, adding that the organisation would decide on future increases. 
3. The government, according to some employers, is interfering with long-standing agreements between employers, employees, and unions to determine pay scales, which is why they objected to the rise. 
4. Politicians and unions, however, disagreed, arguing that a minimum wage of €12 would lessen poverty in Germany.

What is the most appropriate time to introduce or raise the minimum wage in Germany

When is the best time to increase or adopt the minimum wage is a crucial question to address. The dispute is connected to the discussion around the introduction of the minimum wage in Germany in 2009. The dispute has been brought on by the increase in low-paying jobs since the 1990s. Since firms will hire workers up to real wages equal to marginal products, those who oppose the such regulation claim that boosting the real wage will increase unemployment. In a supply-side macro model of variable growth, Flaschel and Greiner demonstrate that adding a general level of minimum (or maximum) real wages has no impact on employment or capital accumulation. Instead, employment and income distribution will fluctuate less dramatically. They stress that it is simpler to impose minimum and maximum real wages during the cycle’s prosperous phase than during its depressed or stagnant one.

The national minimum wage is currently €9.82, with plans in place to raise it to €10.45 by July. In January 2023 and June 2023, the minimum wage commission will make decisions regarding the magnitude of any future increases. One of the highest minimum wages in the EU is applicable in Germany. A full-time worker making the going rate of €9.82 would make €1,621 per month, only behind Luxembourg ($2,257), Ireland ($1,775), the Netherlands ($1,725), and Belgium ($1,658). There is no national minimum wage in a number of member states of the European Union, including Denmark, Italy, Austria, Cyprus, Finland, and Sweden. To choose their own pay, the above-mentioned nations depend on unions and certain industries.

Why talk about minimum wage in Germany

The German government established a permanent panel with nine members, a president, three workers’ representatives, three employers’ representatives, and two economists who do not have voting privileges in the commission, to adjust the minimum wage. In order to determine an appropriate minimum wage, it evaluates Germany’s overall economic performance. The first minimum wage adjustment was made in June 2016, and the second, which boosted the minimum pay to €9.19, was made in June 2018, which was two years later.

One of the most divisive issues during the 2013 parliamentary election campaign was the minimum wage. A universal minimum wage was supported by the SPD, the German Green Party, and the left-wing party Die Linke. The socially conservative CDU and the economically liberal FDP, on the other hand, maintained their scepticism. The establishment of a minimum wage of €8.50 was opposed by the economic research organisation CESifo Group Munich. In 2014, the Centre for Economic Studies of the Ifo Institute anticipated that the minimum wage would cost up to 900,000 jobs, particularly in Germany’s eastern region.

The London School of Economics and Political Science’s study, which showed that the minimum wage did not actually result in employment losses, refuted this claim. It is true that the Economic Policy Research Discussion Paper, which examined employment trends in Germany from 2011 to 2016 across several regions, revealed that the jobless rate declined in areas with historically lower salary levels. Additionally, the German Institute for Economic Research revealed that raising the minimum wage increased employees’ hourly pay but did not raise their overall income. Working hours were reduced concurrently to reduce costs because hourly salaries only marginally increased.

Evolution of minimum wage in Germany 

1. In 2011, the Federal Ministry of Labour and Social Affairs ordered the evaluation of eight sectoral minimum wages, marking Germany’s first experience with minimum wage appraisals. A difference-in-differences methodology based on micro-level data was employed in the majority of the research. While the majority of these studies discovered that sectoral minimum wages had significant positive effects on low-paid workers’ wages and showed only slight or no job losses, for some sectors with extremely high minimum wages relative to median wages, for example, the roofing sector in Eastern Germany researchers identified significant negative employment effects.
2. Additionally, until the end of 2017, the minimum pay for newspaper delivery personnel was set below the statutory minimum. In 2015, about 195,000 workers in these industries made less money than the legal minimum wage. This is equivalent to 5% of the 4.0 million workers who made less than €8.50 an hour prior to the introduction of the minimum wage in 2015. This amounts to roughly 0.5% of the overall workforce.
3. With a few exceptions (youths under the age of 18, apprentices, specific types of trainees and interns, long-term unemployed individuals within the first six months of beginning a new job, and non-profit and/or volunteer workers), the new statutory minimum wage applies to all employees. Additionally, in industries with collectively agreed-to minimum wages that are normally binding by government decree, rates below the statutory minimum wage were permitted during a transition period that lasted until the end of 2017. This was true for jobs in agriculture, meat processing, hairdressing, temporary employment, textiles and clothes, and industrial laundries.
4. Additionally, some industries have minimum wages that are higher than the statutory minimum wage. In the late 1990s, the first sectoral minimum wages were established and made legally obligatory by executive orders. Eleven industries have sectoral minimum wages in June 2018 that ranged from €9.27 to €16.53 per hour. Since the sectoral minimum wage application is broad and difficult to characterise in statistical data, it is impossible to count the number of workers who come under it precisely. With this limitation in mind, the information that is currently available indicates that the construction and sub-construction sectors are the largest, employing about 1.9 million people, many of whom are earning more than the sectoral minimum wage. The next largest industries are commercial cleaning, which employs around 1.1 million people, caring, which employs about 900,000 people, and temporary agency work, which employs about 800,000.

Who gets minimum wage in Germany

The majority of workers in Germany who are over 18 are paid the country’s minimum wage. This covers seasonal labourers regardless of their country of origin. There are several exceptions to the rule, as in most areas. The minimum wage law does not apply to apprentices, job-promotion scheme participants, long-term jobless people in the first six months after returning to the workforce, or self-employed people. Truck drivers and airline pilots who are travelling through the nation are also not insured. The then-government had set the initial minimum wage rate for 2015 at that level. After that, determining the rate and making modifications came under the purview of a separate government agency called the Minimum Wage Commission. The Commission works to balance worker protection, fair competition, and employment levels in all of its decisions. Politics should be disregarded and left outside. 

Minimum wage as a political football

1. The ongoing coalition negotiations to establish a new government in Germany are what have pushed the minimum wage back into the spotlight. After an early exploratory stage, the discussions between the Social Democrats, Greens, and neoliberal Free Democrats (FDP) will move forward seriously. Now, the coalition’s parties must agree on a strategy for governing.
2. A pledge to increase the minimum wage to €12 per hour within a year is one SPD and Green campaign promise that could become a reality. Not only would doing so invalidate the Minimum Wage Commission’s years of effort, but it would also violate its independence. The parties claim that following this one-time increase, the commission can once again take control, unconcerned by this paradox. 
3. The sudden politicisation of a purportedly autonomous organisation has angered critics. The parties argue that raising the minimum wage will help fight poverty because it was too low to begin with. However, many experts disagree, arguing that raising the minimum wage will not help. It may be less probable after such a significant increase that the commission will consent to further increases soon, possibly holding the salary at €12 eternally.

Does minimum wages increase the wages of workers

Economists generally agree that raising the minimum wage increases the compensation of employees whose pay rates were previously below the new wage level. The minimum wage created a significant wage bracket at and/or just above the minimum wage in several nations (e.g., the United Kingdom Low Pay Commission 2011, 2017). On the number of potential spillover effects whether employees who previously earned somewhat more than the minimum wage also enjoy wage increases, there is less conclusive data. This impression is largely supported by the German instance. Hourly wages at the bottom of the pay distribution scale significantly increased after the statutory minimum wage was implemented in 2015. According to SOEP data, hourly wages for workers who made less than €8.50 in 2014 climbed by nearly 14% on average between 2014 and 2016, compared to the average 2-year gain for this group between 1998 and 2014.

The difference-in-differences approach shows that this wage increase is indeed linked to the introduction of the minimum wage. Increases in pay are particularly noticeable in categories that had a high frequency of hourly incomes below €8.50 before the statutory minimum wage was implemented. These groups include female employees, unskilled workers, employees of smaller enterprises, and those working part-time or in marginal jobs (termed “Minijobs” in Germany). The latter is a particular form of work, created in 2003, in which employees can earn €450 per month free of income tax and social security obligations. However, they receive no health insurance and only optional pension insurance.

Why is minimum wage controversial in Germany

Although the effects of minimum wages on employment and wage distribution have been extensively and contentiously studied, little is known about the spatial effects of such a policy. The implementation of a national minimum wage has varying effects in different regions due to productivity and, consequently, wage variations among locales. While the policy is severely felt in underdeveloped areas, only a small percentage of workers in wealthy areas make less than the minimum wage.

Many people were concerned that raising the minimum wage would cause firms to relocate to countries with cheaper labour or use automation to replace workers when it was first enacted in Germany in 2015. Some experts estimated job losses of up to 900,000 people. To see if the economy is once again robust enough to handle such an increase could be a gamble.

Diverse research over the years has produced various results regarding the benefits and drawbacks of a required minimum wage. Others identified negative effects, such as decreased hiring or fewer hours for employees; several researchers found no relationship between employment and a minimum wage. Others assert that there has been a direct benefit.

The benefits are frequently listed as increasing low-skilled workers’ pay, lowering poverty, promoting lawful employment, fostering technical innovation, and lowering employee turnover. The alleged detrimental effects are the exact reverse. A minimum wage, according to opponents, discourages businesses from being flexible, promotes the use of machines rather than workers, results in fewer jobs, makes it more difficult for first-time job seekers, and increases long-term unemployment as more jobs migrate abroad.

A spiralling wage price is a primary concern for the detractors of a minimum wage. When employers have to pay more for labour, employees have more money to spend, which increases demand and, ultimately, prices. It is a loop where everyone ultimately pays more, which likewise drives up inflation. Finding the true effects of minimum salaries will keep specialists busy for the foreseeable future because the situation is not the same everywhere and wages are only one aspect of the complex economic picture.

Most people may agree that employees should be able to support themselves with their wages. As the new German administration settles on a platform for governance over the coming weeks, what that implies for Germany will gradually become clear.

The Minimum Wage Act, 2014 : an overview

The Minimum Wage Act, of 2014 aims to provide worker protection from excessively low pay through the implementation of a comprehensive statutory minimum wage. A minimum wage also makes sure that businesses compete on the basis of better goods and services rather than on the basis of paying their workers ever-lower wages. Because non-living wages can be “filled up” by the government, there may be competition based on wage undercutting, which would be detrimental to our social security systems. As a result, a minimum wage safeguards the viability of our social security programmes.

The Minimum Wages Act of 2014 created a contractual obligation to pay a minimum gross hourly wage. According to the language of this statute, the statutory minimum salary is due in cash. Even when the board and lodging given by the employer have a value that can be calculated in monetary terms, they are not payments in cash but rather payments in kind, and as such, they typically cannot be immediately included in the calculation of the minimum wage to be paid.

Minimum wage components

1. The minimum wage is a “minimum pay rate” within the meaning of Section 2, number 1 of the Posted Workers Act, 1999, as stated in section 20 of the Minimum Wage Act, 2014 and the explanatory memorandum to the Act. This means that the decisions of the Federal Labour Court and the European Court of Law are conclusive. The Posting of Workers Directive (Directive 92/71 EC) serves as the legal framework for this in terms of European law. This Directive requires that the minimum wage laws that are established in an EU Member State apply to both domestic and foreign businesses. The Posted Workers Act of 1999 in Germany turned this Directive into national law. 
2. Employer payments that are made as remuneration for an employee’s “regular labour” are often to be included in the calculation of minimum wage. The minimum wage may not include additional remuneration that an employee receives for labour beyond this.
3. Depending on what they were used for, wage allowances and supplements may or may not need to be taken into account when determining the minimum wage. The additional remuneration for “more work” or “higher-value work” completed at the employer’s request by an employee does not relate to that employee’s “regular work,” and cannot thus be taken into consideration (e.g., overtime supplements, piece-work bonuses and quality bonuses). The types of supplemental compensation that require employment at particular times (such as allowances or supplements for work performed on Sundays or holidays, supplements paid for night work, shift allowances) are also excluded when computing the minimum wage.
4. One-time bonuses can only count toward the minimum wage in the month they were actually and irrevocably paid because of the due-date rule.
5. When the guaranteed pay and the percentage wage combine to equal €8.50, it is sufficient in the event of collectively or contractually agreed sales commissions. By the deadline for minimum wage payment, the employee must actually and unquestionably receive a wage of at least €8.50 for each hour worked. This is true even if compensation is distributed as a guaranteed wage and a sales commission. This kind of wage structure is acceptable under the Minimum Wage Act, 2014 provided that the €8.50 absolute minimum wage is met.

Minimum Wage Commission

1. The Federal Institute for Occupational Safety and Health in Berlin is home to the independent Minimum Wage Commission.
2. Every two years, starting in June 2016, the Commission will decide whether to raise the minimum wage or not. The Minimum Wage Commission will conduct a comprehensive review to determine what wage would assist maintain enough minimum protection for workers, permit fair circumstances for functional competition, and, at the same time, not jeopardise jobs. The Minimum Wage Commission will base its findings on the evolution of collectively bargained pay scales in recent years.
3. Six voting members, a chairman, and two advisory members make up the Commission (experts). The chairman is chosen by the federal government based on a combined recommendation from the labour and management umbrella organisations. Additionally, each of the two umbrella organisations suggests adding three voting and one advisory member. The federal government also appoints these members.
4. When at least half of the commission’s voting members are present, the commission is in session. Alternatively put, when there are three or more voting members present. There is no voting privilege for the two advisory members. When voting members are present, the Commission will decide by a simple majority. At first, the chairman didn’t cast a vote. The chairman will put out a proposal for a compromise if a majority of votes cannot be obtained. The chairman will exercise his right to vote and deliver the deciding decision if a majority cannot be established after an additional discussion about the suggested compromise.

To whom does the general minimum wage apply?

Employees and some interns are subject to the general minimum wage. The following are not workers as defined by the MWA:

• Any individual who is a trainee as defined by the Vocational Training Act, 1999, including those who are enrolled in measures to prepare for vocational training.
• Anyone who performs volunteer or honorary work.
• Anyone who performs volunteer work.
• Anyone who has signed up for a programme that actively encourages their participation in the workforce.
• Any individual who is a home worker as defined by the Home Works Act.
• Anyone who works for themselves

Does the general minimum wage also apply to self-employed persons?

No, the protection provided by the Minimum Wage Act only applies to people in dependent employment because of their social dependency and the resulting inferior bargaining position. Due to this, only employees and interns are covered by the MWA.

Does the minimum wage also apply to voluntary services?

No, participation in the Federal Voluntary Service or other voluntary organisations does not qualify as employment and is therefore exempt from the Minimum Wage Act.  In the end, determining whether a particular action qualifies as a job or volunteer work depends on a thorough evaluation of all pertinent circumstances. The real nature of the business will determine the sort of contract. Therefore, a job can be seen to be an honorary or voluntary activity. The agreement that the job is done on an honorary or voluntary basis has no legal weight if an overall analysis of all the relevant facts reveals that the ostensibly volunteer worker is actually an employee because, for example, he is subject to his principal’s broad authority to give orders. These situations essentially include employment relationships that, legally speaking, are identical to other employment agreements.

Does the minimum wage also apply to home workers?

No, home employees who are engaged in quasi-employment do not have the right to receive the minimum wage.

Are workers who are under the age of 18 and have already completed formal vocational training entitled to the statutory minimum wage?

Yes. Only those who are under the age of 18 and have not finished vocational training are exempt from Section 3(3) of the Minimum Wage Act, 2014. 

Does the minimum wage apply to students?

It actually depends. When working students are 18 years of age or older or have already finished their trade training, the minimum wage is applicable.

Does the minimum wage apply to pensioners?

Yes. Pensioner jobs are likewise subject to the minimum wage.

Does the minimum wage also apply to foreign workers whose primary place of employment is not in Germany and who only temporarily work there, such as transit drivers or cabotage drivers?

Yes. Workers who are only temporarily employed in Germany are likewise subject to Section 20 of the 2014 Act and need to pay the minimum wage. In other words, whether drivers engage in cabotage transport or transit through Germany and perform their duties on German soil, they are also substantially subject to this obligation.  The checks conducted by state agencies to ensure compliance with the Minimum Wage Act, limited to the area of pure transit through Germany, will be put on hold until the difficulties raised under European Law regarding the application of the Minimum Wage Act to the transport sector have been resolved. 

There won’t be any legal action taken for violations of the Minimum Wage Act’s administrative provisions. In the event that legal action has already been started, it shall be ended. However, this restriction does not apply to cross-border road transport, including loading or unloading in Germany or to cabotage transport. This stopgap measure will be in place until the ambiguities in European law about the applicability of the minimum wage in the transit region have been resolved.

Which laws govern international employment? Does a German transport company have to pay its truck drivers the required minimum salary of €8.50 only when they operate outside of German borders? Does the requirement to pay the minimum wage expire at the boundaries of Germany?

For workers employed in Germany, there are no special guidelines for cross-border activity. Germany is the only country with a minimum wage requirement that carries a fine when disobeyed. However, even when borders are crossed, employers remain inherently bound by their contractual commitments to their employees. In accordance with Sections 1 and 2 of the Minimum Wage Act, 2014, payment of the minimum wage is one of these obligations.

Does the minimum wage apply to persons with a disability who are employed in special workshops?

According to Section 138 (1) of Book IX of the German Social Code, many disabled people who work in a recognised workshop for people with disabilities are likely to be in a legal arrangement like that of a person in quasi-employment. They are exempt from the minimum wage as a result of the same. Only when they have a typical employment contract does the Act of 2014 apply to them. Severely disabled people are typically employed by social businesses, as defined by Section 132 (1) of Book IX of the German Social Code, on the basis of a standard employment contract. As a result, starting on January 1, 2015, the Act of 2014 will generally apply to social enterprises that promote work integration (social firms).

Does the minimum wage also apply to employment promotion measures, such as “one-euro jobs”?

No, those who take part in employment promotion initiatives are not workers. These actions are intended to reintegrate people into the labour force. Participants frequently get support benefits under Book III of the Social Code (unemployment benefit) or Book II of the Social Code to meet their living expenditures (basic security benefits for job-seekers).

What rules apply if a portion of the work is done abroad?

All work conducted in Germany is entitled to the minimum wage, and only work performed abroad is entitled to the minimum wage if the employment contract is covered by German labour law.

Is it important to pay the minimum wage while using foreign firms as subcontractors?

Either the Minimum Wage Act or the equivalent sectoral minimum wage under the Posted Workers Act applies when the subcontractor completes the task in Germany.

Which contracts involving employment or an internship are exempt from the minimum wage?

Not covered by the general minimum wage are:

• Minors younger than 18 years old.
• People who had been long-term unemployed before their first six months of work.
• Interns.
• Required internships.
• Up to three-month voluntary orientation internships.
• Unpaid, three-month internships completed while enrolled in a university or a vocational programme.
• Internships in connection with young people’s initial training. 

How are regional employment and unemployment affected by the German statutory minimum wage

Germany implemented a general statutory minimum wage of 8.50 EUR gross per hour worked on January 1st, 2015. Since the “Hartz” reforms in 2003–2005, this reform has been largely regarded as one of the most important institutional improvements to the German labour market. However, it has also sparked heated discussions over the potential employment effects of a national wage floor. Those who support wage floors do so primarily for social and distributional reasons. A minimum wage is thought to be an effective instrument for increasing labour income at the bottom of the wage scale and so reducing income inequality and poverty.

On the other hand, opponents of minimum wages contend that a statutory minimum pay may skew the way prices are determined in the labour market and result in economic inefficiencies that could decrease employment and increase unemployment. From a theoretical standpoint, it’s unclear how a minimum wage might affect employment. According to neoclassical labour market models, the impact of the minimum wage on employment is dependent on how powerful the employers’ market position is. In ideal labour markets where companies are price takers, negative employment consequences and thus more unemployment may be anticipated. On the other hand, if businesses have the ability to establish wages in a particular labour market, a minimum wage may have favourable employment consequences.

From a Keynesian perspective, the consequences of a minimum wage on employment are uncertain. In the case of homogeneous labour, only nominal wages should be affected, while real wages and hence aggregate demand should not change. As a result, given the ambiguous theoretical predictions, it is still unclear how minimum wages would affect the labour market.

In the short to medium term, meaning from 2015 to 2016, the implementation of Germany’s statutory minimum wage had little impact on regional employment levels overall. The considerable decline in marginal employment, or the quantity of so-called “mini-jobs,” is the main cause of the employment changes’ modest overall consequences.

Germany’s approval to hiking of minimum wages (2022)

Germany’s statutory minimum wage will rise to €12 per hour on October 1st, 2022. On June 3, 2022, the German Bundestag approved legislation that increased the country’s minimum wage from its current level of €9.82 per hour to €12 per hour by October 1, 2022. The measure was submitted by a coalition of parliamentary factions.

The possible changes that are expected out of the same have been provided hereunder:

1. For full-time work, the increased minimum wage will translate into a gross monthly compensation of at least €2,080. (forty-hour week).
2. The salary ceiling for those with part-time jobs, or “mini-jobs,” will change in the future and be based on a ten-hour workweek. So, the mini-monthly job’s wage will increase to €520.
3. The monthly compensation ceiling for workers in temporary positions (often known as “midi-jobs”) will be increased to €1,600.

An exceptional instance of keeping an election pledge is the current statutory increase. According to the Minimum Pay Act, 2014, the Minimum Wage Commission, which is made up of business and union representatives, will once more negotiate future minimum wage increases. The following decision by the Minimum Wage Commission is expected to be made on June 30, 2023, and it will go into effect on January 1, 2024.

Conclusion 

As we come to the end of this article, it is notable to state that the minimum wage in Germany has itself remained a topic of discussion for the ups and downs it has been subjected to over a considerable period of time. The subject matter, which was introduced only in 2015, has proved to have a promising future in Germany. The article has aimed to highlight every related factor of concern to the minimum wage in Germany, and all it wants to convey at the end is the need for more efficient management and regulation of the minimum wage in a developed nation like Germany. 

References 

1. https://www.bloomberg.com/news/articles/2022-06-03/germany-approves-hike-in-minimum-wage-to-12-Euros-from-october.
2. https://docs.iza.org/pp145.pdf
3. https://www.researchgate.net/publication/259172367_Effects_of_Raising_Minimum_Wage_Theory_Evidence_and_Future_Challenges.

---

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.