Germany is giving 25% raise to nearly 2 million workers

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Nearly 2 million workers in Europe’s biggest economy will have a huge pay rise.

Three German political parties agreed to form a new government on Wednesday (24) with left-wing Social Democrat Olaf Scholz, set to succeed Angela Merkel as chancellor after lengthy coalition negotiations.

As part of the coalition agreement, the country plans to raise its minimum wage to €12 ($13.46) an hour from €9.60 ($10.77) an hour today.

The move could increase the income of nearly two million people in Germany who earn minimum wages, or about 5% of workers, according to Carsten Brzeski, an economist at ING. He said the change was “clearly significant”.

The minimum wage was already set to rise to €10.45 ($11.72) in July 2022. The text of the coalition agreement did not spell out when the biggest single increase would take effect.

UBS economist Felix Huefner said the move should “boost overall wage growth” across the German economy, while warning that it could “contribute to broader wage pressures.”

The German central bank took the unusual step of publicly criticizing the measure this week, calling it “worrying”. He said it would have an indirect effect on the wages of higher-income workers.

inflationary pressure

Economists and policymakers around the world have closely watched rising wages as a key component of inflation. In Germany, inflation in October was 4.5%, the highest in nearly three decades, as energy prices soared and the cost of food soared.

Germany first introduced a national minimum wage of €8.50 (US$9.54) in 2015.

Support for the minimum wage in Europe grew as union strength waned. The European Commission claims that there has been a fall in the proportion of EU workers covered by collective bargaining agreements between 2000 and 2015, with particularly strong declines seen in Central and Eastern Europe.

A new EU bill announced earlier this month aims to tighten minimum wages across the bloc with new requirements.

“During the previous crisis, lowering minimum wages and dismantling sectoral collective bargaining were the harsh remedies prescribed for many member states,” EU parliamentarian Agnes Jongerius, who sponsored the measure, said in a statement. “Now, we are fighting to raise legal minimum wages and to strengthen collective bargaining in Europe.”

Germany’s minimum wage is already among the highest in the European Union.

*Translated text. To read the original, click here

Reference: CNN Brasil

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