A German report suggests sustainable success more than two years after a wage law took effect.
Minimum wages do far more than just improve the finances of low-income workers. So says a new report from Germany, where minimum wages introduced in 2015 have apparently boosted employees’ general wellbeing during working hours, bringing with them improvements in workplace atmosphere and employees’ work-life balance. The report may be an interesting case study for readers in the U.S., where debates are raging over the long-term effects of raising the minimum wage.
German workers weren’t entirely without protection before 2015: It’s just that the old German system saw wages negotiated between unions and employers rather than via the state. This system persists in several other European countries, including Denmark and Sweden, to this day. Active (and highly effective) collaboration between employers and unions, with the state acting only as a kind of referee, is a cornerstone of the so-called Swedish Model.
While this system always left a few low-status workers out in the cold, it was largely effective throughout much of the postwar period, providing decent, steadily rising wages for most laborers. Things changed in the 1990s, when, in keeping with global patterns, new jobs were increasingly de-skilled. This grew the number of Germans on the lowest rung of the wage ladder, and increased part-time and informal labor. The old system worked far less well in protecting the earnings of this type of worker, ultimately (and belatedly) leading the state to step in to the place formerly occupied by the unions.
Even with far better workplace benefits than most low-income U.S. laborers receive, the initial rate of €8.50 an hour ($9.7 USD) wasn’t exactly princely. Its introduction was still damned as a “horrible mistake” by advocates of an unregulated market, one that would precipitate job losses and hamstring employers.
Two-and-a-half years in, this horror has failed to materialize. Overall unemployment has in fact dropped, falling from 4.2 percent to 3.9 percent between May 2016 and May 2017. The number of out-of-work young people also fell during the same period, from 7.1 percent of the total young workforce to 6.7 percent. This could be, the report suggests, because the minimum wage caused employers to focus on increasing productivity from workers, instead of laying them off. Workloads have thus increased and interruptions have lessened, suggesting that employers are now taking their workers’ time more seriously.
According to the report, this greater workload is counterbalanced by, and may even contribute to, greater job satisfaction. Polling a control group of low-wage workers before and after the introduction of the minimum wage, the study noted a modest but distinct rise in satisfaction with the job itself, along with a better balance between professional and private life. The levels of workplace happiness aren’t exactly stellar, but they have unquestionably moved in the right direction.
Germany’s national minimum wage has since risen to €8.84, and individual regions can require higher local rates (Berlin’s minimum wage, for example is rising to €9 in August). So far, such increases seem to be sustainable, and local worries tend to focus more on the failure to sufficiently enforce minimums for workers such as taxi drivers and bar and restaurant staff.
The country’s modest improvements in workplace satisfaction and job retention may not in themselves validate the decision of American cities such as Seattle to stipulate higher minimum wages. Still, they suggest that mandatory wage rises have made German employers treat their lowest-paid workers a little better all around.