Social Progress – Doing It the German Way

Photo: Wikimedia Commons
Photo: Wikimedia Commons

With Germany at long last imposing a nation-wide wage floor, the country’s slowly conforming to the rest of Europe. Come the crisis and the erstwhile ‘Sick Man of Europe’ became the continent’s economic valedictorian. Extremely low (for European standards) unemployment rate cemented the make-believe caprice that it would work.

As a condition of joining the coalition government, the German Socialists insisted on the establishment of a minimum-wage. The laws of economics could not be so easily beguiled though and flaunting past achievements didn’t quite do the trick either. The low unemployment is a result of a series of patient and painstaking reforms to a welfare state that had been let off the leash and predate the financial meltdown. Another driving force behind low unemployment has been precisely a lack of the set floor for wage rates that ‘protects’ the working from the workless. The country has thus been able to furnish millions of people with jobs undercutting minimum pay rates in neighbouring France. The floor was eventually set at €8.5/hour. Sigmar Gabriel, chair of the German Soc Dems, called the vote “a landmark for Germany.” He went on to say that “in hindsight, this decision will be perceived as a significant milestone in social progress.” But Mr Gabriel was describing a bill that proscribes the unemployed to compete with the cost of their labour so they could make at least the lowest income household bracket. From an economic perspective, minimum wage laws equate in principle to state subsidies that help supplant human labour with automation.

Needless to say, the negative repercussions came well before the bill’s intended date of enactment in January 2015, affecting those most disadvantaged who naturally bear the brunt of such policies. The Socialists’ arbitrarily set wage floor has started to crowd out low-skilled labourers from the official work market, whose productivity couldn’t cope with the randomly selected minimum wage. The data show the hourly rate of pay for cabbies hovering around €6-6.5 on average. The bill is therefore guaranteed to negatively impinge upon circ. 200-220 thousand taxi drivers across the nation. A taxi service in Hannover has already laid off 65 of its employees. The taxi-drivers’ unions expect the figures to soar up to between 50 and 70 thousand of the sector’s employees by the end of the year alone. The much-trumpeted government policy of setting a wage-floor is thus set to deprive them of their livelihood and bound to make them live on the dole and other people’s contributions. Better still, the full costs of preventing the price of labour from being freely arrived at on the market will not only be borne by the employee. The wage floor will make goods and services, the prices of which were predicated on the availability of labour at a price below the minimum pay rate, to spiral up in price too. Thus, the consumers will feel the fallout. For instance, German cab fares have leapt 25 per cent on average and in some instances as much as 50-60%. Similar effects can be expected to crop up in other areas of the economy that had benefited from unskilled labour and it will be interesting to see the impact this will have on unemployment.

Fortunately, this is something that Slovakia is uniquely qualified to provide insight for Germany. Unwavering in its commitment to ‘social progress’, the government hasn’t stopped at double digit (fourteen per cent) unemployment rate and the minimum wage catching up with average pay rates in certain regions and continues its crusade to relentlessly raise the minimum wage. Indeed, it is figures like these that lay bare the truth behind a government’s social sentiments.

Translation: Andrej Arpáš