Is the minimum wage fair

Minimum wage: Does the “fair pay” badge come as an incentive for compliance with the lower wage limit?

The topic

Since the statutory minimum wage of 8.50 euros per hour at that time (today: 9.19 euros) was introduced on January 1, 2015 after a very controversial debate with a lot of noise with regard to the assumed employment effects, the problem of not - Compliance with this actual matter of course is pointed out when paying wages. In addition to the possibilities of legal circumvention strategies, it is primarily about the "black sheep" on the part of companies who (want to) gain an unfair competitive advantage through lower personnel costs.

This naturally also raises the question of whether these are just individual exceptional cases that can never be completely avoided in real life - or whether a considerable number of employees are affected because a large number of non-compliance is used. The German Institute for Economic Research (DIW) in Berlin has now published new estimates.

The new estimation results of the DIW

Regarding the question of the extent of non-compliance with the minimum wage regulations, we learn from the DIW (minimum wage: as before, many employees do not receive it): »A general minimum wage has been in place in Germany for a good four years - but many eligible employees still receive it Workers do not. This is shown by new calculations based on the Socio-Economic Panel (SOEP) at the German Institute for Economic Research (DIW Berlin), which extrapolate previous figures on non-compliance with the minimum wage for 2017 - the most recent for which the corresponding data are available. As a result, even with a conservative estimate, at least 1.3 million employees who would have been entitled to the minimum wage were paid below the minimum wage of EUR 8.84 per hour in their main job. In addition, there were around half a million employees who received less than the minimum wage in a secondary job. "

The calculation results are based on this study: ➔ Alexandra Fedorets, Markus M. Grabka and Carsten Schröder (2019): Minimum wage: As before, many eligible employees do not receive it, in: DIW weekly report, no. 28/2019

Not all workers are equally affected

Of course, as you can already guess, not all employees are equally affected, but there are structural focal points of non-compliance with the minimum wage that are not really surprising:

»The minimum wage is particularly often withheld from employees in the hospitality industry, retail trade, personal services, and agency and temporary work. Women are paid below the minimum wage more often than men despite entitlement to a minimum wage, foreign workers more often than domestic workers, young workers up to the age of 24 more often than older workers, workers in eastern Germany more often than in western Germany, and those in small and very small companies more often than in larger companies. "

Now you have to know that the calculation results of the DIW are based on data from the Socio-Economic Panel (SOEP). In the self-description one finds the note that it is »a representative repeat survey that has been running for over three decades. On behalf of DIW Berlin, around 30,000 respondents in almost 11,000 households in Germany are currently interviewed by Kantar Public Germany. The data provide information on questions about income, employment, education or health. Because the same people are interviewed every year, long-term social and societal trends can be followed particularly well. "

The last aspect that the same people are surveyed year after year, however, is a very abbreviated description of the panel approach, because this is precisely what cannot be adhered to in real life because previous participants repeatedly drop out for very different reasons and with new ones need to be replaced.

Not only the measurement of hourly wages is fraught with uncertainties

The methodological aspect that is decisive here, however, is the fact that it is question of survey data, specifically: a self-description of the respondents. Also and especially when it comes to working hours and remuneration, you have to consider that this can lead to inaccuracies, incorrect allocations and non-consideration of salary components. Incidentally, this is also seen by the DIW and has consequences that are reflected in the two calculation results shown in the figure at the beginning of this article:

»When interpreting the results ... it should be noted that the measurement of hourly wages, especially in the lower wage segment, is fraught with uncertainties. For example, it is possible for overtime to be compensated at a later point in time or for working hours to vary over the weeks of a month. "

In the methodological explanations in Fedorets et al. (2019: 485) we find these statements: »In the SOEP, hourly wages are usually not queried directly. They are formed from the information about the wages received in the previous month, divided by the agreed or worked hours per week, multiplied by the factor 4.331 to get the monthly hours worked. Various measurement errors can occur here. Some SOEP respondents refuse to answer questions about wages, but also about working hours. These cases were excluded from the analysis and their weight was assigned to the remaining valid cases. Employees who state that they have not agreed on working hours with their employer were also excluded and their weight was also allocated to the remaining valid cases. When calculating hourly wages based on the hours worked, the hourly wage can be underestimated if, for example, a later time compensation for overtime is not taken into account. The pure use of the contractual working hours, however, does not reflect the overtime performed and can therefore lead to an overestimation of hourly wages. "

When non-compliance is determined on this basis, the result is a magnitude of 2.4 million affected workers. However, this value was adjusted downwards by the DIW itself in order to reduce the uncertainties mentioned.

Even conservative estimates show massive violations of the minimum wage law

A new approach was introduced for the 2017 reporting year. »Due to the uncertainties that arise when calculating the hourly wage from monthly income information and weekly working time information, the contractual hourly wage was also queried directly in 2017 for employees with hourly wages below ten euros. Information from employees who have a secondary job was excluded in the available analyzes up to and including 2017, as it is not possible to differentiate whether they are employed or self-employed. With the survey year 2017, the recording of secondary activities in the SOEP was changed, so that from now on, an hourly wage based on the hours worked can also be shown for these employees. "

Result: »According to this, even with a conservative estimate, around 1.3 million eligible persons were paid below the minimum wage as part of a main job. In addition, there are around half a million employees in secondary employment. "

The question arises, of course, why these violations that are really not manageable and can come about. "The need for action is enormous, because extensive and intensive controls by the customs, which are supposed to monitor compliance with the minimum wage, are practically non-existent due to a lack of staff," one of the authors of the study, Carsten Schröder, is quoted as saying. If you want to know more precisely how the (non-) controls of the responsible financial control of undeclared work of the customs have developed, please refer to this response of the federal government to a small request of the Greens in the Bundestag: Minimum wages - controls of the financial control of undeclared work in 2018, Bundestag printed matter 19/8830 from March 29, 2019.

Solve the problem with the “Fair Pay” badge ...

So we obviously have a problem (and that's exactly what companies have that stick to the rules, because they have a competitive disadvantage compared to the minimum wage bypassers and the lower the risk of being noticed by a control, the greater the incentives for the not so few black sheep to make use of it).

However, the DIW does not stop at assessing the possible extent of non-compliance with the minimum wage, but instead presents a further suggestion in addition to the demand for more controls: »A“ fair pay ”badge as a certificate for employers who can understand the working hours of their employees would be conceivable document. "Consumers could then make a difference with their wallets, as they can consciously choose to eat in restaurants with the 'Fair Pay' badge, for example," says Fedorets. “This would be a contribution in terms of consumer sovereignty”, so the short version in the DIW press release about the new study.

... instead of black lists of the culprits?

This idea was already put forward by Alexandra Fedorets and Mattis Beckmannshagen on October 21, 2018 in a guest article in the Süddeutsche Zeitung: Bring on the "Fair Pay" badge! In it, the two authors refer to “incentives for companies to behave correctly of their own accord as one possible approach. In the UK, for example, blacklists are published of companies circumventing the minimum wage. This potential loss of reputation is intended to prevent employers from undermining the lower wage threshold. «You can of course reverse the approach of intervening through negative incentives - and this is exactly what the authors suggest:

»In order to support behavior in accordance with the law, a white list could therefore be introduced with companies that voluntarily and completely declare that they are ready to submit their bookkeeping and working hours to a controlling body and allow confirmatory discussions with employees. For a company that can be checked regularly, this should create clear competitive advantages. For example, only these companies should be able to participate in public procurement. At the same time, it must be clear to everyone involved that companies comply with these minimum standards. A plaque that a restaurant can place on the door, for example, or with which it can advertise on the homepage to signal that it pays its employees fair wages would be conceivable. Ideally, online comparison portals would even show which restaurants have this badge. With appropriate advertising, the badge would gain public attention and social prestige. In addition to the well-known “Fair Trade” seal, there would also be a “Fair Pay” badge.

But is the minimum wage really “fair pay”?

Given the broad social support for the minimum wage, many will care whether their waitress is paid fairly or not. And minimum wage violations are widespread, especially in the catering industry. Studies have also shown that customers are willing to pay higher prices for products with comparable “organic” or “fair trade” labels. With the same effect for the “Fair Pay” badge, the higher wage costs could be offset in this way. The whole thing would of course also have its costs, because a voluntary certification also requires resources. But by definition it will cause less effort for the control bodies than the current customs controls, because companies will have to voluntarily and personally prepare a package of documents for certification. "

Such suggestions can and must be discussed, of course also critically against the background of whether this can and will really lead to the desired effect. But a stale aftertaste remains - the use of the term “fair pay” signals that those who adhere to what is actually a matter of course, i.e. who pay the statutory minimum wage, are employers who give their employees a “fair wage” . Then we would be right in the middle of the debate as to whether the minimum wage of currently 9.19 euros per hour is really a “fair” wage. One can certainly doubt that considerably.

Categories: # EFAR contributionsTags: Minimum wage

  • Prof. Dr. Stefan Sell

    Professor of Economics, Social Policy and Social Sciences / Director of the Institute for Social Policy and Labor Market Research (ISAM) at Koblenz University of Applied Sciences #EFAR - Twitter profile