Almost 2 million workers in Europe’s biggest economy are set for a big pay rise.
Three German political parties agreed to form a new government on Wednesday, with left-leaning Social Democrat Olaf Scholz set to succeed Angela Merkel as chancellor following lengthy coalition negotiations.
As part of the coalition agreement, the country plans to raise its minimum wage to €12 ($13.46) an hour, from the current rate of €9.60 ($10.77) an hour.
The move could boost the income of nearly 2 million people in Germany who earn minimum wage salaries, or about 5% of workers, according to Carsten Brzeski, an economist at ING. He said the move was “clearly significant.”
The minimum wage was already set to rise to €10.45 ($11.72) in July 2022. The text of the coalition deal did not state when the bigger one-off increase will take effect.
UBS economist Felix Huefner said the move should “boost overall wage growth” across the German economy, while warning it could “contribute to broader wage pressures.”
Germany’s hawkish central bank took the unusual step of publicly criticizing the measure this week, calling it “worrying.” It said it would have a knock-on effect on wages for higher earners.
