Other ideas make more sense: the minimum wage should be abolished!

The exploratory paper of the CDU/CSU and SPD, the possible next governing coalition, stipulates an increase in the minimum wage to 15 euros per hour – bypassing the commission that was actually set up specifically for this purpose. This means that around eight million people in the low-wage sector are to receive a pay rise, as the party led by incumbent Chancellor Olaf Scholz had promised in full on its election posters.

What at first glance sounds like a very welcome step and an idea worthy of support turns out to be a non-starter in the end, leading to the conclusion that the minimum wage should be abolished rather than increased. There are more sensible ways to provide relief in the lower salary brackets.

Interference in the market economy

First of all, a statutory minimum wage represents a considerable interference in the free market economy and freedom of contract. Every citizen is free to sign an employment contract only if it meets their own expectations, or to reject it if parts of it do not. The most important factor is certainly the remuneration.

Like many things in life, an employment contract comes about through supply and demand. A company has a certain demand for an employee with a certain qualification, number of hours and work performance and makes an offer in the form of a job and a salary. The applicant, on the other hand, is looking for paid employment and has certain qualifications. Only when all parties are satisfied is a contract signed.

What’s more, if there are only a few applicants for a position, the company has to refine its offer in order to meet demand. If, on the other hand, there are more applicants than jobs available, the company can select the best possible demand for itself from this supply. Competition takes place – a state-imposed minimum wage interferes with this and upsets the balance between supply and demand.

TaschenrechnerBild von Steve Buissinne auf Pixabay.

Threat to jobs

Raising the minimum wage can also mean that companies may pay lower wages and be able to offer fewer jobs. This particularly affects low-skilled workers and therefore those who were actually intended to be supported by a minimum wage. This mainly affects sectors with a low profit margin, such as catering, retail or smaller craft businesses. As a result, companies could switch to using more automation and digitalization to replace human workers. Amazon* is a good example.

But even within a company, the increase in the minimum wage can lead to unrest. If the minimum wage earner actually receives a 17% pay rise without having to take on additional responsibility or perform better, and their higher-paid colleagues do not receive such a pay rise, their work is inevitably devalued. The monetary compensation for minimum wage earners disappears.

Either the colleagues negotiate a salary increase of a similar amount and run the risk that the employer will not be able to pay this, or they look elsewhere on the labor market to restore the salary delta. Once again, setting a minimum wage has an impact on an employment relationship.

The plans of trade unions show that this will happen. They have already announced that they will campaign for professions that previously earned 14 or 17 euros per hour. Their work should continue to be valued higher than the minimum wage. In addition, the national alternative income must increase in the medium term, as the citizen’s income is linked to wage levels and the cost of living.

Higher prices and inflation

Companies that have higher costs due to higher wages will generally pass these on to consumers. This leads to an increase in the price of goods and services, which in turn weakens the purchasing power of consumers and thus burdens those who should have been relieved by a minimum wage. The wage-price spiral accelerates.

An example: baker Lutze sells a pretzel stick for one euro. This leaves him a profit of 10 cents. In order to keep his two employees even after the increase in the minimum wage, he would have to sell 415 more such rolls per day (2.59 euros (difference between old and new minimum wage) times 8 hours times 2 employees times 10 cents).

Lutze’s alternative is a price increase. He raises the price of his pretzel roll by 17% to 1.17 euros. The bizarre thing is that although his employees are now paid more, they can no longer afford to buy pretzel rolls. They have lost purchasing power in equal measure. They have gained nothing. Ultimately, baker Lutze could lay off one of his two employees. This would leave the other employee without work. A dilemma decision!

No sustainable contribution to combating poverty

And this is exactly where we come to the most important point: the minimum wage always ends up benefiting others and not those who were actually supposed to be relieved. The main beneficiaries are the state and its politicians, who are trying to win over voters with this well-intentioned idea. The state actually benefits twice over from higher employer gross taxes and the additional price adjustments due to VAT.

The current minimum wage is 12.41 euros per hour. Assuming that the monthly working time is 160 hours, the minimum wage earner in tax class 1 earns a gross wage of around 1,986 euros. The total burden for the employer is around EUR 2,400, as the employer also pays a share of the pension, health and long-term care insurance. In the end, only around 1,466 euros are received. Almost 935 euros go to the state and social security contributions. This corresponds to a rate of just over 39%.

With the required 15 euro minimum wage, the employer’s gross salary rises to around 2,900 euros, of which around 1,200 euros go to contributions, which is almost 42%. The state improves its rate, the employee receives just under 1,700 euros net into his account, which is only 242 euros more. For these 242 euros, the employer has to add a whole 500 euros. These 242 euros can then be consumed (after deducting the above-mentioned loss of purchasing power), but in the end the state again takes a larger share through additional consumption taxes and earns more from the individual.

Lupe auf GeldBild von Louis auf Pixabay

It would make much more sense to reduce the tax burden on low earners. Instead of the horrendous 40%, this could be reduced to a still high 30%. With the current minimum wage of 12.41 euros, the low earner would then receive around 1,675 euros, which is roughly the amount that the initiators would like to achieve by increasing the minimum wage. The difference: the employer does not have to add anything or think about how to earn this additional expenditure.

The state, on the other hand, has other ways of counteracting the loss of revenue. With a budget of over one trillion euros, it has more of an expenditure problem than a revenue problem anyway and the biggest tax burden in income tax is borne by the higher salary brackets anyway.

Shadow economy and illegal employment

In the worst-case scenario, the state fixing of salaries will lead to more companies and employees turning to the shadow economy. Undeclared work or unofficial employment relationships could increase in order to circumvent statutory wage requirements or save the higher costs. This would lead to the state losing control of the labor market and cause tax losses.

Conclusion

A statutory minimum wage may seem like a good idea at first glance, but it has numerous negative effects on the overall economy and the labor market. Free competition of wages, depending on supply and demand, leads to a better and more sustainable solution for all involved. Instead of a minimum wage, alternative measures should be developed to support low earners without unnecessarily burdening the labor market.

Basic Economics: A Common Sense Guide to the Economy*

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Letzte Aktualisierung am 2025-04-16 at 05:58 / Affiliate Links / Bilder von der Amazon Product Advertising API