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The effects of minimum wage, one year after coming into effect
One year after the minimum wage law went into effect, the research institute of the Federal Employment Agency (IAB) looked at the results for the labor market and recently made their findings public. So now we can discuss some of the more interesting aspects.
The effects of the law are still a matter of ongoing debate. In this first report, the most prominent points are weaknesses in how the law was put together.
The study shows that initially, the minimum wage caused the loss of more than 40 000 low-paying jobs. However, at the same time 50 000 of such jobs became permanent registered employment. Pessimist had predicted a much more widespread loss of jobs, especially since many temporary jobs paid much less than the 8.50 Euros an hour before 2015.
One has to keep in mind, though, that the Federal Employment Agency only took into account the development during the first six months of 2015. It is too early to say anything about the long-term effects of the minimum wage, the project manager pointed out. New year 2015/2016 the number of low-paying jobs went down by 456 620. That is 102 00 more than the year before. Those, and the additional new permanent registered jobs can be directly linked to the new minimum wage.
The hoped-for reduction in those who have to supplement their wages through social security was not visible during that first half year. Although the numbers did go down, the change was minimal. At the same time, however, the loss in marginal employment increased the number of those fully dependent on welfare. Again, minimum wage opponents had predicted much higher numbers. Overall, the increase was 100 000 in January 2015.
It seems that employers are not seeing the raising wages as the biggest burden, but the bureaucratic hurdles and requirements that came with the law, paired with legal uncertainties. Here, three aspects specifically come to mind: the documentation requirement, the rules concerning volunteer work, and the liability of third party companies.
Especially the obligation to exactly document the work hours (,following the Act to Combat Clandestine Employment,) seems to have caused more trouble than it’s worth. Minister for Labor Andrea Nahles isn’t planning any changes to that part, though. There have been some minimal adaptions for wages of 3 000 Euros and above, because at that level “it’s unlikely that the minimum wage is being undercut”.
Later that number was reduced to 2 000 Euros. However, those cases require proof that that wage has been paid for at least twelve months straight. Hence, the facilitation only really comes into effect during the second year of employment.
Voluntary work is also affected
Unfortunately, the law does not include a definition of what counts a voluntary work. As a result, the promise to exempt it from the requirements turned out to have little consequence. Especially amateur sports clubs are affected. Ms. Nahles only agreed to exempt those amateur athletes who have a mini-job contract. A more profound adjustment of the law is not planned.
Liability of third party companies
The last point raises the question whether a company who hires subcontractors should be liable for offences against the minimum wage law, or only if they are passing on a contract. The law itself is not very specific in this point, and it doesn’t look like the Ministry is considering any revisions. Hence, clarification will have to happen through court cases.
The law has been in effect for not very long, which makes it hard to judge whether it has proven an advantage or detrimental. It can be said that less jobs were lost than had been widely feared, and at the same time, new jobs with full benefits were created, or “upgraded”. Administrative burdens and legal uncertainties concerning liabilities will continue to present an issue, should the law not be given a revision. It is still on the agenda of political parties and employers’ associations, so that there might still be changes in the future.
Herr Daniel Stock d.stock(@)top-jobs-europe.de