Germany to introduce minimum wage | Hacker News Reader

Germany to introduce minimum wage

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31 pointslelf46 comments

I don't know about Germany, but in the UK the minimum wage is so low that it isn't enough to live on and the government have to make welfare benefit payments so that the people on minimum wage can survive. Businesses are only able to pay such low wages because the government effectively subsidizes them.

Also there are a lot of loopholes in the law, e.g. workers on the government 'work programme' can be paid less than the minimum wage. Interns are supposed to be paid minimum wage, but most are not paid anything at all and the only consequence is that the government writes a stern letter to their employers.

That is also true in many parts of the US. In California, it is currently $8/hr, which means if you are able to work 40 hours a week (likely across two employers), you make $16,640 per year. At that income, you couldn't afford to live alone in Los Angeles, where a studio apartment would cost $1200/month, which is already 86% of your income. You could, however, qualify for subsidized housing, which would pay 80% of your rent, nutrition assistance which would give you a few hundred dollars per month to buy groceries, and recently, subsidized health insurance that would give you a basic HMO plan for free. In effect, the government (federal, state, county, and city) is basically matching the employer dollar for dollar for many minimum wage employees.

UK minimum wage is £6.31 an hour which converts to $10.24, so slightly higher. Though maybe that conversion is too simplistic.

The cost of living is likely higher in the UK. Even in Los Angeles you can get a pint of beer for $4 or a six pack for $8. That is a good benchmark for minimum wages. http://www.courthousenews.com/2013/11/08/62761.htm

If that were the benchmark, Copenhagen is cheap! You can get a six-pack of Tuborg or Heineken for about $7-8, including tax, and any kind of normal local pub will have half-liters at $4-5 (though prices can go up to $10+ at fancy bars). That makes the $20/hr minimum wage look quite nice relative to costs: about three six-packs per hour of work!

However, some other things are expensive, such as housing.

Beer (and gas) shouldn't ever be used to benchmark wages and purchasing power, as those prices are highly determined by local product-specific taxes.

That being said, I believe that non-London UK living costs are not higher than USA; London is a different story.

See: http://www.forbes.com/sites/leonardburman/2012/03/14/raising....

I don't think the minimum wage has been a great success anywhere it's been implemented, so I'm a bit surprised Germany would adopt it now instead of trying something more forward-looking. The conservatives in Germany could have preempted this I think by proposing some sort of minimum income like in Switzerland.

Minimum income is currently not a politically viable option. None of the major parties even considers it as a serious option, nor is there viable public support for it. Minimum wage has widespread support in the population and during the last years the conservative party never styled itself as fundamentally opposed to minimum wage (though always only minimum wage implemented independently from government through collective bargaining where available). As evidenced by the loss of parties who are actively campaigning for a minimum wage in the recent election it’s also obviously not an issue that wins elections (though probably also not one that loses elections).

About half of German employees are covered by those minimum wages through collective bargaining (which, of course, only exist because of the political and regulatory framework for collective bargaining in Germany). Garbage collection workers, for example, are at €8.68, lowly construction workers are at €10.25 (East Germany) and €11.05 (West Germany) and so on.

I can't possibly imagine why a conservative party would consider giving away 25% of GDP as direct handouts in an unprecedented and essentially untested reform of the welfare system over a tweak to employment law which has had positive results in similar countries.

The article you linked to hardly leaves the average reader with the impression a minimum wage would be a disaster.

> minimum income like in Switzerland.

Switzerland has adopted a basic income, not a minimum income. They are two very different policies (minimum income pays the difference between the minimum and the actual outside income to those whose actual outside income is less than the minimum, basic income pays everyone the basic income, irrespective of outside income.)

Switzerland hasn't adopted basic income. There will be a referendum on it next year, but there are referendums on all kinds of things. Some of of them are unpopular enough to fail 25% to 75%, so even getting the referendum initiative passed says little.

That's right -- I was focussed on what the issue was, but it is important to note that it hasn't passed in any case.

I wish we'd just get to the core of the problem, big big inflation via the Fed destroying the purchasing power of the dollar and various other central banks following suit in their own currencies.

If you get new dollars first when they're more valuable, life is TOTALLY RAD. You get to spend the new money before it works its way through the system. So you're spending post-inflation money but getting pre-inflation prices. Yum.

If you don't get the new dollars first then what tends to happen is that your costs go up before your income does. This is not a good situation for a business to be in and it's not good for an individual either.

Imagine that you are trying to make a startup work and every month your COGS goes up 10% but you can only increase the prices you charge on a 6-18 month lag. You might run out of cash covering your increased costs long before you can raise your prices and make up the difference.

This is roughly how household finances have been playing out for quite a few years now. At least ~40 or so years since Nixon closed the gold window, but maybe up to ~100 years since the founding of the Fed.

EDIT: If you want to downvote me could you at least tell me why? I'd like to be a good citizen on HN and downvotes without comment don't explain anything.

Because this is a common misconception about economics that drives me nut. On second thought, I'm definitely too trigger happy. Let me explain:

Inflation has never been a problem since Paul Volcker in 1982. In fact, the moniker Great Moderation should be more properly called Great Moderation of Inflation -- since not much was moderate apart from that, as exemplified by the crashes of 1987 and 2008, and the bubbles; but I digress.

We had about 10, 20 years of the lowest level of inflation in history across the board, maybe 2% per annum or so. Everyone nowadays is obsessed with Zimbabwe, or the ex-Soviet Unions, or the Diocletian Roman Empire, but those are red herrings, minor blips in a sea of (excessive) financial restraint. Inflation is not a problem today.

In fact, deflation is a problem today. Large part of the German restructuring, so lauded everywhere, was helped by inflation in Spain and Italy. (Granted, it wasn't much, maybe 4% per year, but even so.) Now the ECB refuses to return the favor: the ECB won't let inflation go above 2%, twisting the knife in Southern Europe's rib-cage and pissing everyone off. Meanwhile, the US, as most of the West and Japan, remains eyeballs deep in a liquidity trap: you could print the equivalent of the Michigan Lake in one dollar bills, and the Consumer Price Index wouldn't register a blip.

If your start-up were a big bank, you could tomorrow borrow money from the government at a real negative rate. You could borrow a billion dollars, store it in a bank account, pay in 10 years the principal and profit handsomely with the interest. For nothing. That's how low inflation is, today. The Fed is (used to be) desperately trying to increase it, as we speak, with not much effect.

In economic terms, a moderate (actually very low, in historical terms) 4% rate across the board would in fact benefit the system. If you can profit decently by storing money, nobody wants to get their lazy asses from the couch and invest. And the guys who have money don't want to spend it, either -- they're winning money, why spend? Thus a crisis. You have to whip their asses with the printing press, so that they don't get cozy.

Okay, we have really different views on economics. I would tend to disagree philosophically with the idea that "you have to whip their asses with the printing press" and as a result you and I probably won't agree on anything. That's OK, we don't have to.

I take the position that economic output driven my market manipulation (money printing, fixing the interest rate, driving inflation, etc) is undesirable because it sends signals to people about profits or losses or the amount of real resources available via the interest rate that aren't necessarily representative of reality. An example:

In magic-land there is no Fed and the interest rate is a number that clears the market between lenders and borrowers. As people save money they increase the amount of cash that banks have on hand. While they're saving money, they're not spending it and thus some amount of resources are piling up in the real world too, in unison with the amount of savings in the bank. As the banks' cash on hand goes up and nobody is borrowing, they will tend to reduce the rate of interest charged to induce more people to borrow, and reduce the rate of interest paid to reduce people's predilection to save. This causes the money to go to work, and at the same time, those resources which were piled up unused in the real world (in parallel with the money) were also put to work. To me this is a good thing, that stockpiles of money in the bank mirror stockpiles of raw materials in the real world as a result of people's reduced consumption and increased savings.

Now introduce the Fed which by virtue of it's ability to print money can cause bank deposits to increase while the raw materials don't pile up similarly. This causes all kinds of incorrect signals to propagate through socioeconomic life and induces people to make "bad" decisions. In my view this is unfortunate to have people making decisions thinking that the world is one way when in fact it is not, and perhaps going bankrupt as a result.

I imagine there might be disagreement about the relative importance of signalling vs. just making sure that money circulates, no matter what to keep the economy going. But would you disagree that the interest rate -- in the absence of a body which fixes the interest rate -- could tend to serve as a signal for the amount of under/over consumption that's happening in society? If so, why? And if you agree that it could, why is it not harmful to change that signal artificially?

EDIT: Even though I don't think we'll agree, thanks for explaining. Much appreciated.

Because on HN we prefer rational arguments based on evidence. We can debate the evidence, we can debate the logic, but let's start with a credible foundation.

Here are a few sources of evidence. Feel free to suggest your own. Inflation in the US is at depths not seen in 50 years [0]. Just this week, the monthly US inflation number was actually negative [1].

If you don't trust government numbers, try the billion prices project from MIT. It's an independent series with a different methodology, and it coincides (roughly) with BLS numbers [2].

[0] http://research.stlouisfed.org/fredgraph.png?g=oMN

[1] http://www.bls.gov/news.release/cpi.nr0.htm

[2] http://bpp.mit.edu/usa/

A few things.

1. Are the smaller package sizes reflected in any of the inflation numbers you cite? I am asking an honest question here. http://finance.yahoo.com/news/looking-for-inflation--it%E2%8...

2. What do you think about this website? Is he a crank? If so, why? It's common knowledge that the CPI definitions change regularly. http://www.shadowstats.org/

3. How do you feel about geometric weighting? It tends to underestimate inflation. I've done some math here: https://news.ycombinator.com/item?id=4781794

4. Economics is the study of human action, because without humans making decisions and acting there would be no money, no industry, no nothing. People tend to estimate inflation at a higher rate than economists calculate it. Who is more likely to be wrong? https://news.ycombinator.com/item?id=4777899

5. What do you think about the "hedonic" adjustments in the CPI? If you look at the BLS' website they try and say "this stuff is all perfectly legitimate" but inadvertently acknowledge that the definition of inflation is changing. If there were no hedonic adjustments in the 60s and inflation was 0-5% range let's say that was "baseline" inflation. Now there are hedonic adjustments and inflation is in the same range. If those adjustments can reduce inflation then we might be experiencing more price increases now than they did in the 60's but it's simply under-reported. http://www.bls.gov/cpi/cpiqa.htm

Ultimately I believe strongly in some of what Nassim Nicholas Taleb talks about in his writings when it comes to what can be known and not-known. If a coin toss comes up heads 99 times in a row any person capable of exercising some thought would realize that there's something wrong.

I can't put my finger on the exact problem with CPI calculations but I can tell you that where my dad was able to support a family on a single income, and his dad was able to do so as well, I can say with confidence that it would be very difficult for me to do that today. We all had/have engineering degrees and in fact I'm the most educated; I've got a masters degree and they only had bachelors. And I'm in electrical and computer engineering; arguably quite a good business to be in. Why is there such disparity there? How can the official numbers not reflect the difference?

One big issue is that people misremember the past, and it's not a random error but a heavily biased one;

The second is that CPI tracks the price of a fixed size basket of goods&services; but there has been a big change in how much goods&services does 'support a family' means.

For example, if you measure x% increase for cost of housing&utilities, then I'd feel a much, much higher increase simply because "need for space" in my family rising kids is much higher than in my parents' family and the tolerance of living with relatives is less - so we're buying much more "housing space"+heating+stuff for the same number of people and 'social level', and we're obviously paying more for that. In fact, if I think about the goods&services my parents bought when they were young and how much it'd cost if I lived that way, then it would be extremely cheap now, as many of the things that I spend money on simply didn't exist back then and people were happy without them; also many of the habits (how food and trips were done) were done in much cheaper ways - no plane flights for vacations, ever, for example. We're a dual-income family, but I'd say we could live in that 1970'ies style on a single income easily - but, of course, we don't want that.

Today for one or two people flying is often cheaper than driving unless you're marathon drivers. Once you roll a whole family in it still might be cheaper once you consider the food, hotel/motel, lost time due to infinite bathroom breaks, etc in addition to gas and miles on the car.

But you've made a good point; people made do with less back then and that should be factored in.

I think part of the problem is that the artificially low interest rates are turning "conventional wisdom" or "traditional values" on their head. At 6-8% interest rate and 1-3% inflation saving money makes sense as you get a real interest rate that's positive enough to make saving money smart. Putting away money for future expenses is a good thing as future expenses are discounted today via the interest rate. Living within your means is actually wise.

Today only a fool isn't indebted because with interest rates below 1% and inflation at several percent people are effectively paying you to take loans. Saving money for future expenses actually makes them more expensive; better to wait til you need the money and then borrow it so that you can reap the benefit of negative real interest rates, rather than pay it. Because it doesn't make sense to save money, people don't and that means spending. Good for the GDP numbers today, bad for conventional wisdom about money and especially bad for society's ability to withstand credit shocks or employment shocks as nobody has a cash buffer to see them through the hard times.

Wow, that's amazing that Germany never had minimum wage!

To be honest, this seems like a good example that not having minimum wage doesn't necessarily lead to pre-industrial age wage slavery that academics are always worried should minimum wage disappear.

Actually, Germany is a good example that sooner or later wage slavery does set in.

The powerful and widespread unionization and the regulatory framework for collective bargaining has until now made mandatory minimum wages unnecessary, but that systems has been broken ever since the reunification, and has collapsed with the economic crisis.

If anything, the current situation in Germany makes the argument for having minimum wage stronger than ever.

Yep. The fact that there are plenty of people in Germany who work 40 hours per week and still need to apply for benefits in order to be able to pay their rent and buy food is not only a big shame for this country, it also effectively shifts salaries from being paid by the employer to being paid by the taxpayer.

That was prevented only because of strong unions effectively setting a minimum wage for their industries. Hence why non union workers where getting shafted.

The history of early unions in Germany is btw quite interesting, especially in Weimar and before WW I, if I'm not mistaken. It is not so long ago that workers had to seriously strike to achieve any improvements of unimaginable horrible work conditions. And it is not so long ago that the german army was used to end those strikes using lethal force.

Especially the Ruhrgebiet has quite some stories of that regard. It shines an interesting light on the history of the german social democrats and their relationship to the communist party, given both their interest in the approval of the workers, and is a - mildly put - embarrassing comparison to the state of the modern SPD and its political vision (its Gestaltungswille).

Might be a bit OT for non-germans, but most countries - apart from the USA, afaik - should have a similar part of their history.

Actually the US had a rather strong worker movement, it just played out quite differently than in Europe. So in the US the unions did quite often manage to get a corporate pension plan, while the European ones did get a government pensions. Similar with health care and many work place regulations.

The U.S. labor movement did used to be stronger than it is now, but it was never really that strong. At the peak in the 1950s, about 35% of workers worked in unionized workplaces. That's a very low figure for Europe, where typically 70%+ of workers work in unionized workplaces (here in Denmark it is 80-90%).

It's a few years old now, but Table 5 here is interesting from that perspective, showing percentage of workers in countries without minimum wages, who are instead covered by a union minimum wage: http://www.eurofound.europa.eu/eiro/2005/07/study/tn0507101s...

Countries like Denmark and Austria are sometimes touted as examples of how you can have no minimum wage and still good working conditions, but they really do have something very close to a minimum wage. It's negotiated through a corporatist labor framework rather than passed directly by a legislature, but the end result is that 98% of Austrian workers and about 85% of Danish workers are covered by a minimum wage (in Denmark it is 109 DKK, about €15/hr).

Germany by contrast has much lower rates of union coverage (69% as of 2003, and rapidly dropping), making that mechanism less effective. One solution could be to introduce a de jure minimum wage, as Germany now seems likely to do. Another solution could be to change Germany's labor framework so it's closer to the one that prevails in Denmark and Austria, countries that have systems that more or less guarantee that large workplaces are always unionized.

That implies an interesting argument in favour of a standard minimum wage from a right-leaning perspective; not having it greatly strengthens trade union influence and consequentially results in worse distortion of market wages.

You mean this would not happen: http://www.reuters.com/article/2012/02/08/us-germany-jobs-id...

Are you citing this as a problem comparable to nation wide wage slavery academics warn against? I think this problem in Germany is so marginal and rare that you are trivializing the magnitude of the problem. If this is the scale of problem caused by lack of minimum wage, I would say abolish minimum wage without any hesitation. Advantages of not having minimum wage is clearly order of magnitudes larger than this marginal problem.

Which academics? (Presumably economists?) National wage slavery already is the norm — that term means you rent yourself to someone and do as you're told. http://en.wikipedia.org/wiki/Wage_slavery

This concept is very strange to me, as Germany is generally considered to be a high-efficiency high-wage country. I wonder if this comes from social pressure of supporting so many high-social-welfare countries.

Germany of all places? Thats the one economy in Europe that actually seems to work quite well. Why try to "fix" it?

As much as I'd love to talk about this it seems much more political than tech related, are there any issues of tech workers getting less than 8.50? What's the angle...

Probably not.

On the other hand, our team of senior Linux administrators get 7 EUR per hour each in Prague, just 350km from Berlin. It's always interesting to hear about wages in other parts of the world. Puts things into perspective...

our team of senior Linux administrators get 7 EUR per hour each in Prague

Wow. Just wow. Wikipedia says that they're making far less than the per-capita income for the Czech Republic. Presumably they speak English - why do they stay, rather than move elsewhere in the EU? (In Silicon Valley, the same job would pay multiples of the mean income.)

More selfishly, assuming you aren't there yourself, how do you go about finding Eastern European technical talent, which everyone speaks so highly about?

I can't speak for them, but don't underestimate the reasons people may have for staying in their country, and don't overestimate their appreciation for money.

I make about the mean income in my country (which is quite a few k€ above the median). I know for a fact that I could go to other parts of Europe and earn possibly twice or more, but I don't think I'm going to do so in the near future. Here I have my family, my friends and my climate. There awaits me a bigger amount of money... that I have no real use for.

In reality, you can get more in other companies. Up to 2500 EUR monthly, I'd guess. German companies in CR offer even more.

But yeah, for 1750 EUR monthly wage you'd get a dedicated, talented young developer who probably already knows at least two programming languages and basics of web development. Or the other way around.

(It's also a slightly above-average wage of a normal full-time C developer.)

Hmm, to reach someone from the outside... try http://brmlab.cz/lists and ask around.

"...how do you go about finding Eastern European technical talent..."

Advertise for remote positions?

I mean, I occasionally get either some recruiters or see interesting companies, but it always stops at the fact that I'm not willing to move my family to USA or London just to get a larger salary that'll still likely buy a lower quality of life.

Yeah, that's interesting to me as well. I thought you could only get away with paying people that much in China / India.

I tend to think somewhere like Prague would be an awesome place to do a startup.

You don't seem to have a problem talking politics about the US. How do you explain that?

It's mostly tech related tangentially on HN...

Personally, I love talking politics, whatever country. The article just didn't seem to have anything related to tech, and perhaps might not be appropriate, unless HN wants to become a place where we can talk politics whether its tech related or not.

Your previous comments belie you.

http://xkcd.com/386/

How does Germany calculate "unemployment" differently from the United States?

http://www.wolframalpha.com/input/?i=germany+vs+united+state...

You should use the unemployment rate, since the US are several times larger than Germany. Apart from that, I think that German unemployment is compiled by some government office, who use the actual numbers of people who get unemployment benefits, while in the US telephone surveys used.

http://www.wolframalpha.com/input/?i=germany+vs+united+state...

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