Germany Proposes to Raise Minimum Wage in 2024 and 2025

What’s going on:     

Germany has proposed raising its minimum wage by 3.4% to €12.41 ($13.53) per hour in 2024, followed by a further 3.3% increase to €12.82 per hour in 2025, according to Reuters. These proposals come from a government-appointed commission and are expected to be approved by the Labour Minister, Hubertus Heil. 

Why it matters:     

Germany is considered Europe’s largest economy, and the country’s policies greatly influence the rest of Europe. Reuters reports that the proposed minimum wage hike is estimated to impact approximately 6 million employees. The increase in wages is viewed as essential to assist low-income workers in dealing with persistent inflation and interest rate hikes, which have diminished purchasing power in Germany.  

How it’ll impact the future:       

While some economists argue for its justification, others believe the minimum wage proposal falls short in compensating for the escalating cost of living. The future consequences on the workforce will hinge upon the ability of the new minimum wage to effectively counter inflation and uphold the purchasing power of workers in Germany. 

As a result of the minimum wage increase, businesses may face heightened labor expenses, potentially leading them to transfer these costs to their customers. Consequently, this could contribute to maintaining a persistently high level of underlying inflation for the time being.