Germany and the Minimum Wage

From the New York Times Editorial Board:

The federal minimum wage of $7.25 an hour is obviously too low. So is the Democrats’ proposed increase to $10.10 an hour by 2016. If the minimum wage had merely kept pace over time with inflation, average wages or productivity growth, it would be between $11 an hour and $18 an hour today.

It would also be higher if it kept pace with what other advanced economies are prepared to pay.

Last week, the lower house of Parliament in Germany voted to set a nationwide minimum wage of 8.50 euros an hour, about $11.60, effective in 2015. The upper house is expected to approve the measure this week. With the passage of it, Germany, France, Britain and the Netherlands have or soon will have higher minimum wages than the current and proposed minimums in the United States, and only six countries in the European Union will be without a statutory minimum wage: Austria, Cyprus, Denmark, Finland, Italy and Sweden.

The expected German minimum is noteworthy not only for its level. For nearly 70 years, most wages in Germany have been set by agreements that are collectively bargained between unions and employers. In recent decades, however, and particularly following reunification with the former East Germany, the share of workers who are effectively covered by union agreements has fallen. By enacting an adequate minimum wage, the German Parliament is responding constructively to that development, because a solid wage floor ensures that economic growth is broadly shared even by those who fall outside the collectively bargained framework.

In a global economy that has long relied on low wages to lift profits, a relatively high minimum wage in Germany would also reflect a growing consensus there that a high-wage, high-productivity economy is, in fact, an advantage in stabilizing the nation economically and socially.

In Germany, as in the United States, business lobbyists and some economists have warned that a robust minimum wage will lead to job losses and higher prices, but that has not been the historical experience. Rather, higher wages for low-wage workers are generally offset by lower labor turnover, while the boost in consumer spending from higher wages is good for the economy. Boosting consumer demand is especially important in Germany, whose economy is overly reliant on exports.

Germany’s move offers the United States important lessons, if only lawmakers in Washington would learn.

The Economy May Be Improving. Worker Pay Isn’t.

From NYT’s “The Upshot” by Neil Irwin:

The latest economic data out Tuesday morning was generally good. Home building activity remained above the one million a year rate. Consumer prices rose 0.4 percent in May, such that inflation over the last year is now 2.1 percent, about in line with what the Federal Reserve aims for.

But that inflation news carried with it a depressing side note. Now that the Consumer Price Index for May has been published, it is possible to determine inflation-adjusted hourly earnings for the month. And the number is not good.

Average hourly earnings for private sector American workers rose about 49 cents an hour over the last year, to $24.38 in May. But that wasn’t enough to cover inflation over the year, so in real or inflation-adjusted terms, hourly worker pay fell 0.1 percent over the last 12 months. Weekly pay shows the same story, also falling 0.1 percent in the year ended in May.

Pause for just a second to consider that. Five years after the economic recovery began, American workers have gone the last 12 months without any real increase in what they are paid.

Read the entire article here.