German Lawmakers Back Minimum Wage After Merkel Cedes to SPD

German lower-house lawmakers approved a national minimum wage of 8.50 euros ($11.61) an hour, sealing a concession by Chancellor Angela Merkel to her Social Democratic coalition partner.

Backed by Merkel’s four-fifths majority in the Bundestag, the plan to introduce the first statutory pay floor in Europe’s biggest economy passed today by a vote of 535 to 5 with 61 abstentions. It was criticized by industry as damaging to competition and by labor unions who said exemptions go too far.

“The minimum wage applies now, Germany-wide, in east and west -- it applies to all workers,” Labor Minister Andrea Nahles, a Social Democrat, told lawmakers in Berlin before the vote. “It finally brings decent wages for millions of people that have been working diligently but have been fobbed off.”

Merkel campaigned against a statutory minimum wage last year, saying it would threaten Germany’s competitive edge and that wage-setting belonged in the hands of companies and employees. The German leader’s faction gave ground to the Social Democrats, who made the measure a condition for helping her stay in power for a third term in December.

About 3.7 million workers will benefit from higher wages, according to government estimates, or about 9 percent of the work force. The upper house, or Bundesrat, which has backed a minimum wage in the past, will vote on the bill July 11. The law is due to take effect Jan. 1.

Union Bargaining

“With the minimum wage, many jobs in the low-wage sector will disappear in the years ahead,” burdening government social programs, Hans-Werner Sinn, head of the Munich-based Ifo economic institute, said in an interview yesterday. An estimated 200,000 jobs will be lost in the next two to three years, he said.

Workers on existing collective contracts will be exempted, as will people younger than 18 and long-term unemployed during the first six months of work. The wage floor will be phased in over several years for newspaper deliverers, and cost-saving write-offs will apply to seasonal farm workers.

Germany has been one of seven of the European Union’s 28 member states without a nationwide minimum wage. Since World War II, the country has relied on union-dominated bargaining agreements, especially in heavy industry, to set wages.

The emergence of a low-wage sector, particularly among expanding service businesses, created pressure to put in place a guaranteed wage.

German industry, which had opposed a minimum wage, particularly for small businesses in Germany’s former communist east, said loopholes in the law didn’t go far enough.

The economy in eastern Germany, including Berlin, will expand 1.8 percent in 2014 and 2 percent next year, Ifo’s branch in Dresden said today. Still, while accelerating growth will benefit employment, “demographics and the nationwide minimum wage will be burdens on the east German labor market next year.”

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Tony Czuczka, Leon Mangasarian

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