Minimum wage set to cause job cuts

Between 250,000 and 570,000 jobs could be cut as an effect of the minimum wage being introduced in Germany next month. This was the claim of a study released this week by the Initiative for New Social Market Economy (INSM). INSM, funded by German employers' organizations from the metal and electricity industries, which describes itself as a non-partisan group of German political, economic and academic experts.

The study emphasizes Germany's good track record for improvement to the labor market and unemployment rates in the last decade, warning that "implementing a statutory minimum wage threatens to jeopardize this progress."

From January 1, 2015, most German employers will have to pay their employees at least 8.50 euros ($10.55) per hour. Twenty-one out of the 28 EU member states already have a national minimum wage, but this will be the first time one is introduced in Germany. The law was pushed through after long discussion in the German parliament and is one of the Social Democratic Party's (SPD) flagship policies within the coalition.

There are some exceptions to the minimum wage, for example apprentices and unqualified employees under 18. In order to encourage employers to take on people who have been out of work for a year or more, the minimum wage will not apply to them in the first six months of employment.

Response from employers

A separate study, released on Thursday by the Munich based Center for Business Cycle Analytics and Surveys (ifo), found that job cuts were only one of the ways employers are planning to respond to the change to the law.

More than a quarter of the 6,300 businesses surveyed for the ifo study said that they would be affected by the implementation of a minimum wage. Of these, 57 percent said that they were planning measures to save costs as a result of this. However, the study suggested that even if employers said they were not planning any measures, "this suggests that the increase in staffing costs will result in them taking a loss."

Different sectors will respond to the change in different ways, the ifo study found. While a quarter of employers from the manufacturing sector and a third of those from the retail sector said that they were planning job cuts, only 16 percent of employers from the service industry said that they were planning to respond to the minimum wage in this way, and that they were planning price increases instead.

The service sector, especially the catering and hotel industry, will be particularly affected by the implementation of a minimum wage in January. This sector relies heavily on unskilled employees who currently often earn less than 8.50 euros an hour.

Former East, low qualified workers most affected

Both studies found that eastern German states would be more heavily affected by the introduction of a minimum wage than their western German counterparts. In the former East Germany, where wages have remained lower than in the western states since reunification, as many as eleven times more jobs could be cut than in the West, the INSM study forecast.

"The minimum wage will harm those that the government is purporting to help - low-skilled workers," said INSM director, Hubertus Pellengahr, in response to the study.

In France, which has one of the highest minimum wages in Europe at 9.53 euros an hour ($11.70), employers receive an incremental wage subsidy from the government in order to offset the potential negative effects on the number of jobs available. The authors of the INSM commissioned study, minimum wage experts Ronnie Schöb and Andreas Knabe, recommended that the German government should also implement wage subsidies, but recognized that this would be an "expensive policy."