Is Germany’s minimum wage good for France?

French finance ministers have long complained that Germany’s lack of a minimum wage meant ‘unfair’ competition for the French economy. But with Berlin agreeing last week to finally introduce one, does the wobbling French economy stand to gain much?

Is Germany’s minimum wage good for France?
French President Francois Hollande and German Chancellor Angela Merkel shake hands after a press conference as part at the EU Headquarters in Brussels. Photo: Alain Jocard/AFP

Speaking on a visit to an eyewear factory last year, the then French consumer affairs minister, Benoît Hamon, made it clear how France felt about Germany’s continued lack of a minimum wage.

“Some countries in Europe are getting around employment directives and underpaying their workers,” Hamon said.

He then went further, saying: “I want Germany to have a social policy where competitiveness doesn’t rely on jobs paying €400 a month. I want [Germany] to play fair with an economic model that isn’t based on a competition for who can pay workers the least,” he said.

Last week the German cabinet took a major step towards granting Hamon his wish when it agreed to a national minimum wage of €8.50 ($11.75) per hour – a flagship project for the Social Democrats (SPD) who share power with Angela Merkel's conservatives.

That wage level is still below France’s own minimum salary which currently stands at €9.53 an hour or €1,445 a month, but it will no doubt be welcomed in Paris, where a newly installed government is tasked with revitalizing an economy burdened by debt, record high unemployment and minimal growth.

Economist Tomasz Michalski from HEC business school in Paris said Berlin’s move would help France, but not to the extent ministers like Hamon suggest.

“There’s no doubt a German minimum wage will help the French economy, both directly and indirectly,” Michalski tells The Local.

“It will have a huge impact on those earning low wages, for example in the service industry, manufacturing, or agriculture where it will help French competitiveness, because Germany had relied on workers from Eastern Europe, who were paid peanuts.

“For example the meat packing industry in Brittany has suffered in recent years due to the fact that Germany has developed its own huge industry that was built on low wages. In Brittany they just couldn’t compete. So now having a minimum wage in Germany will help,” Michalski says.

But he says the benefits of redressing the balance will be limited.

“There will not be the same effect for example in the car industry where workers earn more than the minimum wage and the salaries are similar between the two countries,” he says.

In this case, Michalski says, it’s not what happens in Berlin that will benefit the French economy, but what the government in Paris does.

“The real difference between the car industries in the two countries is in terms of payroll charges or tax on labour, which are much higher in France,” he says.

“If you want to make France’s manufacturing industry more competitive in regards to Germany’s then the French government has to lower these charges. Then they will be able to build cars on the same terms as in Germany.”

Hollande has indeed vowed to cut payroll charges on businesses by €30 million in a bid to try to stem the rise in unemployment. Although the finer details of the measures have not been announced it is believed the cuts will affect those employed on lower wages.

Economist Thomas Klau from the European Council on Foreign Relations (ECFR) in Paris, says the introduction of a minimum wage in Germany may actually put pressure on the French government to adjust its own.

“With Germany’s minimum wage being lower than France’s there may be pressure on Paris from Europe to bring down or at least not raise its own level of minimum wage,” Klau told The Local. “The fact Germany’s is lower may add to the impression that the French have a welfare state that they can’t afford.”

Klau does however accept that the higher cost of living in France compared to Germany accounts for the discrepancy.

The minimum wage, which dates back to 1950 in France, is considered a sacred part of the country’s welfare state, but with unemployment levels breaking records each month, there have been murmurings recently that something drastic needs to be done.

French economist Pascal Lamy, the former director general of the World Trade Organisation, offered up a controversial solution to the unemployment crisis by suggesting some temporary jobs could be paid below the minimum wage.

“A small job is better than no job,” he told LCP media. “I wouldn’t have said this 10 or 20 years ago, but with this level of unemployment…”

HEC’s Michalski doubts a left-wing French government would ever push through a lowering of the minimum wage or the measure put forward by Lamy, but he says “the tide is turning”.

“I think the country is ready for it, but perhaps not this government. Maybe the next one,” he said.

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