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German employers weigh up legal challenge to €12 minimum wage

Germany's Employers' Association is considering taking the government to court over plans to introduce a €12 minimum wage by the end of next year.

Published: 30 December 2021 15:38 CET

An Amazon worker sorts parcels at a warehouse in Mecklenburg Western Pomerania. Photo: picture alliance/dpa/dpa-Zentralbild | Jens Büttner

Speaking to DPA on Thursday, Rainer Dulger, president of the Confederation of German Employers’ Associations (BDA), said the issue wasn’t with raising the minimum wage, but rather with the route chosen to get there.

“The way it is being proposed by the federal government at the moment, it is a gross violation of collective bargaining autonomy,” he said.

On the same day that Olaf Scholz (SPD) was sworn in as chancellor, Labour Minister Hubertus Heil announced plans to rapidly introduce a bill that would see the minimum wage hiked up from €9.60 to €12 by the end of 2022.

The pledge to raise wages for the lowest earners was a key electoral promise for the centre-left SPD, and Scholz has claimed that the move will benefit around 10 million people.

But critics from the BDA say that the government is breaking a promise to leave the Minimum Wage Commission in charge of changes to employees’ pay packets.

“In the short term, it is not about the €12, but about how the new federal government deals with the minimum wage commission and with collective bargaining autonomy,” Dulger said. “The minimum wage as a plaything of politics is the last thing our social partnership needs.”

Since the minimum wage was first introduced in Germany in 2015, representatives of business owners and employees have been tasked with setting increases as part of the Minimum Wage Commission.

Dulger said there was a danger that this would lose all meaning if every future government was able to simply set the rate it wanted and then “reinstate” the commission afterwards.

“Whether, when and how we will have a qualified legal review of the federal government’s action depends entirely on when this political minimum wage is to be enforced,” he said. “The autonomy of collective bargaining is constitutionally protected.”

Rainer Dulger

Rainer Dulger, president of the German Employers’ Association, speaks at an event in July. Dulger believes the move to hike up the minimum wage could make the Minimum Wage Commission obsolete. Photo: picture alliance/dpa | Bernd Weißbrod

Hans Peter Wollseifer, president of the Skilled Trades Association, expressed a similar view.

“If the minimum wage of €12 were to come in as early as 2022, it would make around 200 collective agreements obsolete that had been negotiated between the social partners – i.e. employers and trade unions,” Wollseifer told DPA. “The only conceivable way out of this dilemma is to set the 12 euros as a target – but not for 2022.”

With the minimum wage already set to increase by €10.45 by July 1st, Wollseiter said he thought the target of €12 could be reached by the end of 2023 without government intervention.

‘Common interest’

On the trade unions’ side, workers’ representatives have said they are keen to find a solution to raising the minimum wage that doesn’t undermine the Minimum Wage Commission.

“We have a common interest in not calling into question the functioning of the minimum wage commission,” Dieter Hoffmann, the president of the Confederation of Trade Unions (DGB) told DPA. “It should be possible to find a common solution on how to reach the €12 quickly.”

Once the target of €12 is reached, the previous mechanisms for setting wages should continue to exist, Hoffmann said.

“At the same time, it is clear to the trade unions that the minimum wage is always only the second-best solution – after a strong collective bargaining relationship with good collective wages,” he added.

In their coalition agreement, the SPD, Greens and FDP promised that the commission would continue to set future increases after the one-time adjustment to the minimum wage – a promise that was reiterated by Hubertus Heil in a recent interview with the Rheinische Post.

Vocabulary

to consider – erwägen

Minimum wage increase – (die) Mindestlohn-Erhöhung

Employer – (der) Arbeitgeber

to reinstate – wieder einsetzen

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Output is expected to expand 0.3 percent this year, the economy ministry said, up from a prediction of 0.2 percent in February.

The slightly rosier picture comes after improvements in key indicators — from factory output to business activity — boosted hopes a recovery may be getting under way.

The German economy shrank slightly last year, hit by soaring inflation, a manufacturing slowdown and weakness in trading partners, and has acted as a major drag on the 20-nation eurozone.

But releasing its latest projections, the economy ministry said in a statement there were growing indications of a “turning point”.

“Signs of an economic upturn have increased significantly, especially in recent weeks,” Economy Minister Robert Habeck said at a press conference.

The ministry also cut its forecast for inflation this year to 2.4 percent, from a previous prediction of 2.8 percent, and sees the figure falling below two percent next year.

“The fall in inflation will lead to consumer demand — people have more money in their wallets again, and will spend this money,” said Habeck.

“So purchasing power is increasing, real wages are rising and this will contribute to a domestic economic recovery.”

Energy prices — which surged after Russia’s 2022 invasion of Ukraine — had also fallen and supply chain woes had eased, he added.

Several months ago there had been expectations of a strong rebound in 2024, with forecasts of growth above one percent, but these were dialled back at the start of the year as the economy continued to languish.

‘Germany has fallen behind’

But improving signs have fuelled hopes the lumbering economy — while not about to break into a sprint — may at least be getting back on its feet.

On Wednesday a closely-watched survey from the Ifo institute showed business sentiment rising for a third consecutive month in April, and more strongly than expected.

A key purchasing managers’ index survey this week showed that business activity in Germany had picked up.

And last week the central bank, the Bundesbank, forecast the economy would expand slightly in the first quarter, dodging a recession, after earlier predicting a contraction.

German Economics Minister Robert Habeck

Economics Minister Robert Habeck (Greens) presents the latest economic forecasts at a press conference in Berlin on Wednesday, April 24th. Photo: picture alliance/dpa | Michael Kappeler

Despite the economy’s improving prospects, growth of 0.3 percent is still slower than other developed economies and below past rates, and officials fret it is unlikely to pick up fast in the years ahead.

Habeck has repeatedly stressed solutions are needed for deep-rooted problems facing Germany, from an ageing population to labour shortages and a transition towards greener industries that is moving too slowly.

“Germany has fallen behind other countries in terms of competitiveness,” he said. “We still have a lot to do — we have to roll up our sleeves.”

Already facing turbulence from pandemic-related supply chain woes, the German economy’s problems deepened dramatically when Russia invaded Ukraine and slashed supplies of gas, hitting the country’s crucial manufacturers hard.

While the energy shock has faded, continued weakness in trading partners such as China, widespread strikes in recent months and higher eurozone interest rates have all prolonged the pain.

The European Central Bank has signalled it could start cutting borrowing costs in June, which would boost the eurozone.

But Habeck stressed that care was still needed as, despite the expectations of imminent easing, “tight monetary policy has not yet been lifted.”

In addition, disagreements in Chancellor Olaf Scholz’s three-party ruling coalition are hindering efforts to reignite growth, critics say.

This week the pro-business FDP party, a coalition partner, faced an angry backlash from Scholz’s SPD when it presented a 12-point plan for an “economic turnaround”, including deep cuts to state benefits.

Christian Lindner, the fiscally hawkish FDP finance minister, welcomed signs of “stabilisation” in the economic forecasts but stressed that projected medium-term growth was “too low to sustainably finance our state”.

“There are no arguments for postponing the economic turnaround,” he added.