Interestingly, German Chancellor Angela Merkel has recently sanctioned Germany’s first minimum wage. It has been set at €8.50 an hour (effectively £7.00 at current exchange rate). The minimum wage is due to be implemented in 2015.
Germany was one of a small group of EU member states that did not have a minimum wage. This was largely due to the fact that wage regulation was conducted via works councils/collective agreements in accordance with the well-established consultation model that has been operative in Germany since post war.
This well-worn route had worked well for the German economy as it successfully rebuffed the economic downturn to a large degree and of course dealt with German reunification.
However, all that glistens is not always golden. There have been traditional concerns amongst social commentators that there was a broad swathe of workers who were not receiving sufficient remuneration, particularly non-indigenous workers.
There has been some recent pressure applied to Merkel’s Government to try and push through greater protective rights for fixed-term and part- time workers.
The implementation of a minimum wage reinforces this process. It has been met with some criticism by more conservative elements within the German Parliament but on the whole it has been well received.
There are exclusions for certain groups most noticeably minors, interns, trainees or long term unemployed people during their first six months at work. Furthermore employees using temporary or seasonal workers will have two years to phase in the new requirement.
It remains to be seen whether this has a major impact on economic efficiency although there seems to be a general “feel good” mood regarding minimum wage issues and indeed the UK’s current Chancellor, Mr Osborne, has already indicated that he would also want a rise in the minimum wage.
The regulations in Germany are due to come into effect on 1 January 2015 and the objective is that they would be reviewed on an annual basis as from 1 January 2018.
For further information on European issues contact Matthew Yates, Partner, DD +44(0)113 261 6047 or David Gibson, Partner, DD +44 191 233 9762