The Bumpy Road to a National Minimum Wage in Germany

This report was featured as a chapter in “GLOBAL WAGE DEBATES: POLITICS OR ECONOMICS?” a joint report co-authored by the global partners of JustJobs Network.

In January 2015 – for the first time in its history and after more than ten years of heated debate – Germany introduced a national minimum wage of € 8.50 (US$ 9.32) per hour. Up to this point, pay had been negotiated exclusively through collective bargaining between unions and employers, and the state had not intervened directly in the wage-setting process.

As this report will demonstrate, a key driver behind the introduction of the minimum wage was the erosion of the German collective bargaining system that began in the mid-1990s. The rapid increase in low-paid work and the sharp downward extension of the wage scale went virtually unnoticed for almost a decade, since all the actors – including trade unions – balked at the idea that the traditional German model of negotiating wages through collective bargaining was no longer future-proof and in need of reform.
It was not until the ‘Hartz Acts’ of 2003 further expanded the low-wage sector in Germany, which was already excessively large by European standards, that it became clear that trade unions in many industries no longer had the bargaining power to set effective wage floors. Consequently, debates on minimum wage went beyond expert circles and it became a national policy issue.

Between 2005 and 2013, trade unions attempted to establish collectively agreed minimum wages at industry level – which would have rendered a national minimum wage unnecessary. These initiatives failed because the employers’ associations in the largest low-wage sectors – for example, retail and hospitality – were unable or unwilling to negotiate these agreements with the trade unions.

Nevertheless, the idea behind industry-specific minimum wages – namely to strengthen the role of collective bargaining – also lies behind the new minimum wage legislation. It became part of a broader legislative package – “Act on the Strengthening of Free Collective Bargaining” – whose aim, in addition to introducing the minimum wage, was to increase the number of workers covered by collective bargaining agreements and facilitate the process of making industry-wide agreements on minimum wage legally binding.