German employers gear up for minimum wage revolution

FE Team | Published: December 24, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

BERLIN, Dec 23 (Reuters): Michael Pirl is about to raise prices at his hotel in rural east Germany to cover a spike in labor costs as a national minimum wage takes effect, and he hopes new events like dinner shows will keep the customers coming.
Like most German employers, he'll have to pay all his 74 staff at the four-star Ringhotel "Zum Stein" at least 8.50 euros an hour from Jan. 1 and he's worried about how this will impact business at the retreat 130 km (80 miles) southwest of Berlin.
"To what extent can you persuade guests to continue buying or consuming the same amount of products? If the beer or wine gets more expensive, would you drink the same amount as before?" he said. Maintaining the hotel's existing salary structure will increase his wage costs by 8 per cent.
Chancellor Angela Merkel's government agreed in April to introduce Germany's first country-wide wage floor in a victory for the Social Democrats (SPD), who made it a condition for joining a coalition with Merkel's conservatives last year.
Some economists believe the reform will boost consumption - which Berlin is relying on to drive economic growth - while others say it could reduce purchasing power if it causes firms to cut jobs or hike prices.
More than one in four German firms expect to be directly affected. Of those, more than half said they would need to take counter-measures such as cutting staff or increasing prices, a survey by the Munich-based Ifo institute found.
The law comes at a time when Europe's largest economy has cooled and the government faces pressure from European partners to boost weak investment.
While 21 out of 28 European Union states have a minimum wage, Germany has long resisted, using sector- or region-wide collective wage deals. But these have become far less frequent since 1998.
Trade unions have broadly welcomed the change of tack, mindful of the sharp expansion of the low-wage sector since 2003, when Gerhard Schroeder, Merkel's SPD predecessor, liberalized labor laws. Reports have since surfaced of workers earning as little as 2 euros an hour.