Germany to hike minimum wage to 9.19 euros per hour next year

FILE PHOTO: A worker of Ford Germany checks the engine of a StreetScooter WORK XL electric van based on a Ford Transit at Ford's new production line in Cologne, Germany October 9, 2018. REUTERS/Wolfgang Rattay

BERLIN (Reuters) - The German cabinet agreed on Wednesday to increase the national minimum wage by 35 cents to 9.19 euros ($10.43) per hour at the start of next year and then to 9.35 euros from 2020 - a move that could boost consumption in Europe’s largest economy.

The hike, which had been proposed by a commission in June, marks the second increase of the national minimum wage that was introduced by Chancellor Angela Merkel’s government in 2015. First set at 8.50 euros per hour, it was raised in 2017 to the current level of 8.84 euros.

The increase could affect some 2 million people or more. The Federal Statistics Office said around 1.4 million people received the minimum wage in April last year and around a further 800,000 people had earned less even though they basically qualified for the minimum wage.

German real wages are rising and the extra cash in consumers’ pockets is, along with record-high employment and low borrowing costs, helping household spending, which has become a key growth driver that provides a buffer against trade-related risks stemming from rising protectionism.

The centre-left Social Democrats (SPD), junior partner in Merkel’s ruling alliance, were the driving force behind the introduction of the wage floor during the last legislative period.

SPD Finance Minister Olaf Scholz has called for the minimum wage to rise even higher and told Bild newspaper’s Wednesday edition that he thought 12 euros per hour was appropriate.

The SPD is likely keen to raise its profile on such topics after suffering humiliating losses in two state elections in the last few weeks. The party has given Merkel’s conservatives until next year to deliver more policy results, threatening to end their alliance if there is no improvement.

Germany is in the top third of European countries when it comes to minimum wages - in early 2018 minimum wages in the EU were only higher in Luxembourg, France, the Netherlands, Ireland and Belgium, a study by the Institute of Economic and Social Research (WSI) showed.

Reporting by Holger Hansen und Thorsten Severin; Writing by Michelle Martin; Editing by Riham Alkousaa and Maria Sheahan