Labor Costs In Germany's Former East, Trading Minimum Wages for New Jobs

Germany's decision to establish the country's first minimum wage, at €8.50 per hour, may lead to job losses in economically struggling parts of former East Germany, where consumer buying power remains weak.
Knut Geisler, a district organizer for IG Metall, a German metalworkers union, speaks on July 4, 2014, to during a temporary work stoppage at Salzgitter AG, a mining company in northcentral Germany.

Beginning in 2015, hotels and restaurants in the former East Germany must pay employees the legal minimum hourly wage of €8.50 ($11.49). But the law, as formulated by the federal minister of labor and social affairs, Andrea Nahles, allows industries that would be greatly affected to undercut the minimum until 2017.

While the hotel/restaurant industry association, know by its German acronym, DEHOGA, doesn’t question a legal minimum wage in the former West Germany, it warns of many job losses in the former East Germany because businesses there can’t afford to hire at that rate.

Industry negotiator Guido Zöllick said the union demands were “exorbitant and absolutely excessive.

With this in mind, the industry association demanded the €8.50 minimum be paid in all of Germany no earlier than September 2016. The labor union NGG had set June 1, 2015, as the target date, after which pay in lower wage groups would increase rapidly in several steps, reaching €10 ($13.52) by July 1, 2017.

According to industry negotiator Guido Zöllick, the union demands were “exorbitant and absolutely excessive.” He said the step plan would have resulted in 25 percent higher wages in his home state of Mecklenburg-Western Pomerania in northeast Germany.

Quelle: dpa
</a> Workers during a temporary work stoppage called a warning strike at ThyssenKrupp, a German steel and metals maker, in the town of Duisburg on 3 July 2014.
(Source: dpa)


“That is not economically feasible within 30 months,” Mr. Zöllick said. His association is ready to negotiate an increase to €8.60 ($11.63) for 2017, he said.

Union negotiators scoff at the industry’s stance.

“DEHOGA lost the chance to shed the image of being a low wage industry,” said Burkhard Siebert, the labor union’s vice chairman.

The union is especially critical of employers that want to pay only €7.50 ($10.14) an hour until April 2015 – less than provided for by current wage agreements in federal states such as Saxony-Anhalt and Brandenburg.

Frank Specht is an editor at Handelsblatt. He can be reached at [email protected]