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Germany is to give 1.8 million workers a 25% pay rise after the European commission demanded Berlin increase its social security contributions.
The pay hikes, covering three million employees in the public and private sectors, will be formally announced on Wednesday by Germany’s new Social Democratic chancellor, Martin Schulz.
It is the first time in four years that Germany has raised the minimum wage, as industrial relations had been dominated by negotiations between labour unions and the government.
Workers in Europe’s biggest economy will receive a monthly base salary of €848 (£752), equivalent to €625 for working full-time.
The new payments will come into effect on 6 April and will be indexed for inflation.
German news agency DPA said the higher salary would translate into an extra cost of around €4bn a year for the federal and state governments and the regional authorities.
Schulz wants to reverse Germany’s rightward shift, where the economy has been driven by a firming up of the labour market and robust growth in exports. In his election campaign, he promised to restore prosperity and fairness, fuelling a rise in party membership by 5% in the last quarter alone.
He plans to take control of SPD lawmakers within weeks after a party congress in March votes on a reform of the party’s leadership in an effort to rescue its fortunes in a country marked by political paralysis.
The commission argued that Germany was benefiting from an “excessively fast” wage development that was “unnatural”, saying it should make its social security contributions more stable.
On Tuesday, Schulz and the parliamentary leader of the Social Democrats, Andrea Nahles, detailed the minimum wage hike in a meeting with Commission President Jean-Claude Juncker.
“We also have a chancellor of the SPD whose electoral promises include making Germany pay for its problems,” Juncker told a news conference afterwards.
The new wage deal will affect workers in the manufacturing, transport, accommodation and restaurant sectors. Germany’s co-governing party, the Greens, said 1.1 million people would benefit from higher monthly minimum salaries.
Greens co-leader Katrin Göring-Eckardt said in a statement: “The European commission showed leadership today.”
Germany already has a higher minimum wage than most other countries in the EU, with 5% of its workforce paid the current €8.50 level.
More than 40 countries across the continent adopted laws last year increasing the floor in their minimum wages. According to a UN estimate, over a billion people were living on a poverty-level salary last year.