Jean-Claude Trichet, the president of the European Central Bank, called them a “brake on employment”:
The warning came after several competitors to Deutsche Post, the former state monopoly, announced redundancies and the cancellation of investments in response to Berlin’s decision to impose a minimum wage in the postal sector last week.
Minimum wages are shaping up as a priority policy area for the government next year as the parties of the coalition seek to woo voters ahead of important regional elections. Angela Merkel, chancellor, said these could be extended next year to services sectors ranging from gardening to “temping” agencies.
“Setting minimum wages at levels which are not in line with productivity reduces the employment chances of less skilled workers and of the unemployed,” Mr Trichet told a conference in Berlin.
I must admit that I’m a bit surprised (pleasantly so) to see this sort of sage advice coming from Europe. I will be even more surprised if the advice is heeded.
Cui bono? The Financial Times article noted the most likely beneficiary:
Economists said the decision to impose minimum pay of €8-€9.80 ($11.70-$14.40) per hour in the postal sector would shield Deutsche Post from competition when the letters market is opened on January 1. Competitors said this would add to the Post’s existing privileges, including its exemption from value-added tax.
Bert Rürup, chairman of the five “wisemen”, the group of academics who advise the government on economic policy, said “the postal minimum wage has achieved its real industrial goal, namely to preserve Deutsche Post’s monopoly”….
Earlier this week, TNT and Hermes Logistik, two other Post competitors, said they had cancelled plans to enter the private letters market from January 1, when it opens to competition.
Public choice theory at work.
The minimum wage laws in question here work basically like a collective bargaining agreement.
The government used existing legislation last week that allows it to declare any wage agreement covering more than 50 per cent of a sector’s employees as the legal minimum for this sector. The construction and cleaning sectors are already subject to such legislation.
Dispelling any illusions that Angela Merkel is the second coming of Thatcher, not only are these minimum wage proposals coming from the liberal faction of her coalition, she is helping push them into law:
The Social Democratic party, junior partner in Ms Merkel’s coalition, has been the main driving force behind the minimum wage offensive. It is now encouraging employers and employees in 10 services sectors to submit minimum wage requests to the government by March next year.
The move has been more controversial in Ms Merkel’s CDU. Prominent opponents, such as Günther Oettinger, state premier of Baden-Württemberg, criticised the measure at the party’s annual conference on Monday.
Yet Ms Merkel made it clear other sectors would follow postal services. “When other sectors request it and the conditions are fulfilled, we will consider (adding them to the list),” she told delegates. “There can be no fair competition without minimum standards.”
Yes, Frau Merkel, but with minimum wages come higher labor costs, and firms find it harder to compete. Moreover, you create a situation where it’s difficult to get hired as a new employee since businesses can just pay the more experienced workers a bit more to work harder and/or purchase new technology. Why pay $14.00 an hour for someone you have to train when you can throw an extra $10.00 an hour at someone who knows how to do the job and will work harder? Or better yet, buy a software program or automated device that does the job and doesn’t demand benefits, time off or anything else, and comes at a fixed cost? Essentially, minimum wages price low skilled workers out of the market and cost smaller businesses too much to be able to compete. Again, cui bono?
Since Deutsche Post employs over half of all postmen in Germany, competitors have accused it of seeking to rob other players of their cost advantage by having its pay deal with the Verdi services sector union adopted as legal minimum by the government.
Whichever competitor is left standing.
[tags] Germany, minimum wage laws, economics, Deutsche Post, monopoly [/tags]
Or better yet, buy a software program or automated device that does the job and doesn’t demand benefits, time off or anything else, and comes at a fixed cost?
I’m not sure wages get low enough to deny that logic with or without regulations. Even without them, there’s an functional minimum wage out there under which an average Joe can’t earn enough to cover his neccessities, and thus doesn’t bother. If automation prices can get under an artificial minimum wage, it can also get under the wage floor that comes from the costs of keeping human beings supplied with the minimal needs.
Thus, fewer jobs that pay better, or more jobs that pay worse = the same amount X of labor costs and/or income disseminated to workers overall.. so what does it matter?