When Germany raised its minimum wage in 2015 some feared the new policy would lead to unemployment - but figures have highlighted a positive effect on wage inequality across the country as a result


Growing the national minimum wage helped Germany to reduce “wage inequality” on a larger scale than any other European Union state, say analysts.

The country topped a table by survey specialist Eurofund for the greatest reduction in wage inequality, with a 6.3% drop in 2015.

There was blanket wage growth and wage inequality reduction across most EU member states.

Eurofound analysts said Germany‘s minimum wage increase is responsible for its performance, which also included a wage growth rise of 3.5%.

It’s argued that because the wages of the country’s lowest paid workers were lifted, the disparity between the the top and bottom was reduced.

Other top performers in terms of wage inequality reduction included the UK (6.2%), Sweden (4.9%), and Lithuania (4.4%).

As far as wage growth is concerned, Lithuania and Romania were far out in front with 11.7% and 10.6%, respectively, followed by Bulgaria (6.9%), the Czech Republic (5.3%), and Portugal (5.1%).

Luxembourg (-5.5%) and the UK (-3.1%) were the bottom two performers.

wage inequality
European countries ranked by wage growth and inequality (2015). Source: EU-SILC

The key to Germany’s wage inequality reduction

Germany’s decision to raise the minimum wage gap in 2015 was meant to combat rising numbers of employees not covered by wage floors and the increase in low-paid jobs across the country.

Wage inequality had risen the year previous, but following its decision the country experienced a huge change in the wage dynamics of the German labour market.

The youngest and oldest age groups enjoyed the most significant hike in wages, primarily comprising those less educated, part-time workers, female employees, and people in low-skilled jobs.

Employees working in services like arts, entertainment, and recreation recorded a significant wage increase, with those in construction and retail also seeing a more modest boost.

But there appears to be no downside to Germany’s minimum wage increase as we head towards 2019.

Employment data indicates the prospects of those who benefited most have improved rather than worsened, which has assuaged fears about the possible increase in unemployment some had concerning the policy before it was introduced.