Minimum Wage in Europe Offers Ammunition in U.S. Debate
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Version 0 of 1. PARIS — Now that President Barack Obama has proposed an increase in the U.S. minimum wage, people on both sides of the debate in Washington might want to look to Europe for ammunition. Minimum wage policies vary widely across the Continent, and as Europe grapples with the austerity measures that governments have imposed to help overcome its long-running debt crisis, the issue — especially the way minimum wages affect growth and competitiveness — is as important as ever. In countries like Germany, where there is no minimum wage, concerns are mounting that swaths of low-skilled workers are sliding into poverty. In more protective nations like France, where the minimum wage is used to address income disparity and stoke spending, some say that higher labor costs may make investors turn elsewhere. “The impact on growth from changes in the minimum wage comes down to the level at which it is set,” said Simon Tilford, chief economist at the Center for European Reform in London. “Those set at moderate levels don’t have a negative impact on employment or growth. But clearly there is a risk that if it is raised too high, it can lead to problems.” In the United States, he said, the minimum wage “is clearly very much on the low side.” He added: “It’s about striking a balance between the need to ensure people are on a living wage, and making sure that wage isn’t set so high that it prices them out of employment.” One argument frequently advanced in places like France — and which Mr. Obama raised when he made his proposal during the State of the Union address to Congress on Tuesday — is that minimum wage levels must at least keep up with the rise in inflation. But even with an incremental increase, minimum wages still tend to be below what most people consider a living wage. In France, which pioneered minimum wage legislation in Europe starting in the 1950s, President François Hollande recently raised the minimum wage twice to fulfill a campaign pledge to help low earners, even as Germany and other North European countries called for wage restraint as part of broad austerity measures intended to help Europe exit its long-running debt crisis. Both moves resulted in political backlash. When Mr. Hollande lifted the hourly wage in June by 2 percent, to €9.40, or $12.64 an hour, trade unions and political opponents said the increase was not nearly enough to help the working poor. “You can’t even buy a baguette every day” on the increase, a popular leftist leader, Jean-Luc Mélenchon, charged. Yet when Mr. Hollande lifted it again last month by another 0.3 percent, to €9.43 an hour, the main lobby group for small and midsize French businesses warned that the decision would add to France’s already high labor costs, threaten investment and bring on “the destruction of tens of thousands of jobs among the least qualified.” Still, while employers contend that lifting the minimum wage raises their overall cost of doing business, people earning low wages must rely on some form of welfare to supplement their income and survive, Mr. Tilford said. That means private employers are being subsidized in some form by the government, he said. Since Britain introduced its minimum wage in 1999, Mr. Tilford added, “the impact on employment was minimal, and there was no indication it had any negative impact.” In Germany, the picture is starkly different. Germany has no nationwide legal minimum wage, a point of contention for the main center-left political party, the Social Democrats, who plan to use the issue against Chancellor Angela Merkel in their campaign to unseat her in the elections next autumn. Hourly wages are as low as €7 for laundry workers in eastern Germany but can also be higher. The minimum wage for construction workers in western Germany is €13.70 an hour. But cuts in minimum benefits for jobless people since 2005 have put pressure on those seeking employment to work for low wages. That has contributed to a steep drop in unemployment — the jobless rate in Germany is a relatively low 7.4 percent. But it is also stoking complaints that employers are exploiting some workers. German media have reported on people earning less than €4, and €6 an hour is not uncommon in industries like food service or retailing. Critics say such policies have also deepened income inequality, even as the German economy outperforms most others in Europe. “Much of the growth there has been from low-wage jobs, well below the minimum wage set in surrounding economies,” Mr. Tilford said. “This has priced people back into labor, but on wages that have to be subsidized by the government in various forms because people can’t live on those wages.” The Social Democrats, in league with the German Confederation of Trade Unions, have begun a campaign to institute a nationwide minimum wage of €8.50 an hour. According to union figures, 7.5 million Germans, or 18 percent of the work force, currently earn less than that amount. Not surprisingly, industry groups oppose a minimum wage, arguing that it would kill jobs. In the meantime, keeping wages low has hardly helped stoke consumer spending, an engine of domestic growth, Bert Colijn, a labor market economist at the Conference Board in Brussels, said. “The fact that there is no minimum wage, and that Germany has been so hard-line on wage growth, has definitely had an impact,” he said. While Germans tend not to be big spenders to begin with, he said, “you don’t see that Germany has had a big pickup in consumption.” In Spain, the debate has been more about whether to loosen collective bargaining agreements and allow companies to negotiate directly with employees, as is already the case in the auto sector — which has pushed wages down. The minimum wage in Spain was frozen in December 2011 by the government, a move that drew criticism from unions that has since died down. Spain’s minimum wage is in the lower part on a European scale, at around €748 a month. Switzerland has also taken up the debate: although the nation seems to exude wealth, there is no minimum wage, which some say leads to big disparities in living standards. Economists say that as Europe struggles to exit the crisis and ensure that more people do not fall through the cracks, the most important way to tackle those initiatives is by lifting productivity — something that minimum wage policies tend not to address. “In the advanced economies of Europe and the United States, gains won’t come from being very cost competitive,” he said. Enhancing productivity, he added, “is the easiest way to improve things.” <em>Jack Ewing contributed reporting from Frankfurt, and Raphael Minder from Madrid.</em> |