German institutes warn minimum wage could threaten jobs in east

BERLIN Thu Oct 17, 2013 5:04am EDT

German Chancellor Angela Merkel (CDU) laughs as she delivers her speech at a congress of the Industrial Mining, Chemistry, Energy Union (IG BCE) in Hanover, October 16, 2013. REUTERS/Fabian Bimmer

German Chancellor Angela Merkel (CDU) laughs as she delivers her speech at a congress of the Industrial Mining, Chemistry, Energy Union (IG BCE) in Hanover, October 16, 2013.

Credit: Reuters/Fabian Bimmer

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BERLIN (Reuters) - Germany's leading economic institutes warned on Thursday that the introduction of a minimum wage of 8.50 euros per hour, as demanded by Angela Merkel's likely future coalition partner, could lead to significant job losses in eastern Germany.

A quarter of workers in the former communist east earn less than the wage floor proposed by the center-left Social Democrats (SPD), the institutes said in their twice-yearly report, commissioned by the German government.

"A blanket minimum wage that applies to all sectors and all regions would probably have significantly more negative consequences for the labor market than the current sectoral deals," the institutes said.

Data from the IWH institute, which contributed to Thursday's report, shows that 11 percent of workers in western Germany earn less than the proposed 8.5 euros an hour, compared to 25 percent in eastern Germany.

Germany has resisted introducing a blanket minimum wage, in part because it was seen as too much political interference in wage bargaining between unions and employers. Instead it has continued to rely on collective wage agreements by sector and region.

But coverage by such deals has decreased to 59 percent of the workforce from more than 70 percent in 1998, according to the Hans Boeckler Foundation, and the low pay sector has surged in the wake of reforms to loosen up the labor market.

The SPD campaigned on the need for a minimum wage and deputy SPD leader Andrea Nahles has said the minimum wage is a condition for her party to join a coalition with Merkel.

Merkel's conservatives have shown increasing willingness to compromise. One suggestion, supported by economists, is the appointment of a non-political commission to determine how a minimum wage could be implemented and how high it should be.

"We must be careful not to destroy jobs," Merkel said on Wednesday at a congress of trade unions in Hanover.

(Reporting By Sarah Marsh, Additional Reporting by Rene Wagner; Editing by Noah Barkin)

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