Minimum wage blowback

Many people outside Germany may be surprised to learn that the country had no minimum wage until the first of January, 2015. A minimum wage law was discussed for decades, but successfully resisted by the German business lobby.

The Social Democratic Party ran on a promise to fight for a minimum wage law in the federal election of late 2013, and it was able to overcome resistance from the senior coalition partner, the center-right Christian Democrats, in the two parties' coalition agreement after the election. The consequence: A minimum wage law that went into effect at the beginning of this year.

The German economy continues to purr along regardless. Yet some of the dire warnings about the effects of a minimum wage that had been expressed by the law's opponents in the period prior to its adoption are showing early signs of validation. Those warnings focused on two concerns: Services provided by low-wage workers would get more expensive, and German small business would get even more mired in paperwork than it already is.

Taxi rides have indeed become even more expensive, which will increase the likelihood that ride services like Uber will displace the traditional taxi industry. Haircuts have also got more expensive than they were last year, even though in that industry, the minimum wage of 8.50 euros per hour will only take effect this summer.

Another playground for Germany's 'Papierkrieg' monster

More distressingly, Germany's inner bureaucratic monster - the culture's all too familiar tendency to bury everything in bureaucratic procedures - has found a new field of play. The reason is that the ministry of labor naturally has to check whether the minimum wage is in fact being paid - and that burdens business with an additional whack of onerous reporting requirements, on top of the many they already have.

Germany has around seven million people that work in "minijobs", which are a special class of very low-paid job contract. That's nearly one in six of Germany's 43-million-strong workforce. A "minijob", under the law, is a job that pays not more than 450 euros per month. The state provides special exemptions and subsidies, like free health insurance, for minijob workers.

The idea behind the minijob system was to provide work opportunities for the long-term unemployed, or people with no work experience and few skills - as the lowest rung on a career ladder. Previously, the precise number of hours worked by minijobbers was irrelevant. Now, employers of minijobbers will be required to carefully track the hours worked, to make sure the minimum wage law is respected.

Needless to say, in the real world, employers will try to get around the regulations. Minijobbers might be offered compensation with movie passes or a visit to the solarium instead of cash for extra hours worked; or the records will show that the minimum wage law was respected, but in reality, employers will require extra hours at no pay. The labor ministry will try to prevent this sort of thing by means of inspections and controls.

But where is the boundary between effective controls and excessive controls?

The center-right Christian Democrats think the boundary has already been crossed. Chancellor Angela Merkel, who two years ago was a determined opponent of a minimum wage law - or at any rate presented herself as such - has already begun talking about "corrective measures" to the law's implementation framework.

The Social Democrats (SPD) aren't happy about that. The labor minister, Andrea Nahles, is a passionate supporter of minimum wages. One of the SPD's arguments in favor of a minimum wage law was the claim that it would reduce the size of the "shadow economy", also known as moonlighting - i.e. under-the-table work that avoids payment of value-added tax or income taxes.

But a new study shows that the introduction of a minimum wage may increase, not decrease, under-the-table work. That's what economist Friedrich Schneider at the University of Linz, an expert on the shadow economy, expects will occur as Germany's minimum wage law takes hold, on the basis of an economic model - though it's too early for empirical data to be available to test Schneider's model, which suggests that people will be able to earn more per hour, on a net basis, through under-the-table jobs than corresponding above-board jobs paid at minimum wage.

And now Labor Minister Nahles, fresh from her minimum-wage-law victory, has introduced her next project: A regulation on workplace quality control. So will people who work from home soon find inspectors turning up to check whether their desks are getting sufficient light to prevent eyestrain?

Minister Nahles has already been responsible for a retirement package reform that will cost a total of about 160 billion euros between now and the year 2030 - about 9 to 11 billion a year; it gives workers who have paid into the pension fund for 45 years the right to retire at 63, and provides an increase in the nation's modest pension for mothers. She also has been responsible for the over-bureaucratised new minimum wage law. Now she appears to want to turn every workplace into a wellness oasis.

What will the lady's overzealousness burden German taxpayers and businesses with next?