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Minimum wage in Germany could boost automation

Staff writer |
Early this year, a new minimum wage came into practice in Germany, a measure which is estimated to benefit 3.7 million German workers.

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The consequences this will have are not clear and it is still too early for it to have a significant impact. In general, however, it is believed that it will boost investments in machinery.

An important argument against a minimum wage is that companies will therefore invest more in machinery and automation to reduce labour costs. A study by Duke University conducted among CFOs worldwide revealed a clearer picture.

In general, companies tend to invest in machinery when labour costs increase. The minimum wage, which is intended to protect low-paid workers, actually becomes a threat, as their jobs usually require low skills and can be easily replaced by machines.

The study also shows that there is a specific tipping point beyond which investing in automation becomes more attractive, which according to researchers, is a minimum wage of ten dollars per hour.

Furthermore, researchers conclude that, in Europe, a 40% increase in the minimum wage, which would entail going from 7.25 to 10 dollars per hour, would lead to layoffs at 37% of companies. Nearly 70% say they would advertise fewer vacancies. But more importantly, nearly 60% of companies would enforce measures to reduce labour costs, including investments in machinery.

Incidentally, the minimum wage in Germany has been set at 8.50 euros per hour, which, when converted, is still below the tipping point of 10 dollars per hour.


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