The minimum wage will increase to 13.50 euros per hour, but some parties and unions want to increase this amount even further. They suggest a minimum of 14, 16 or even 18 euros per hour. That sounds like a nice plan, but experts have their reservations.
Last winter, the minimum wage increased by about 10 percent and the outgoing cabinet’s Budget Day plans also included an increase. The increases are on top of annual increases that follow the wage increases of other employees. On Thursday during the General Political Deliberations, the House of Representatives agreed on an additional increase of 1.7 percent to 13.50 euros per hour.
In election manifestos, parties on the left of the political spectrum argue for a further increase to improve the position of people with low incomes. And the FNV trade union also said on Thursday that it should be increased even further. Hourly wages of 14, 16 or even 18 euros are mentioned.
Experts warn about the effects of such a sharp increase. “It sounds good, especially because last year’s increase had little effect due to inflation. But a significant increase is expensive and may not achieve its goal,” says Wiljan van den Berge, assistant professor at Utrecht University.
First of all, a faster increase in the minimum wage could be at the expense of employment, Van den Berge explains. “That effect was not too bad with previous increases and it will also be less than expected with the limited increase to 13.50 euros. But if we suddenly go to 16 euros, we cannot assume that.”
From monthly wage to hourly wage
From 2024, the minimum wage will be determined per hour instead of per month. Until this year, employees with a 36-, 38- or 40-hour working week will all receive the same minimum wage per month. From 2024, the hourly minimum wage will be leading and people with a longer working week will therefore receive more money. This could amount to an increase of approximately 10 percent for people with a forty-hour working week.
Job losses due to higher minimum wage
“Less productive workers at the bottom of the labor market may lose their jobs,” says Van den Berge. “Employers are no longer prepared to hire them if there is a significant increase and are more likely to see whether they can do without them, for example by automating.”
According to professor of economics at the Vrije Universiteit Pierre Koning, this effect will not be clearly visible in unemployment figures, but it will significantly limit employment. “The people who lose their jobs as a result and cannot find work as easily will become discouraged and end up on welfare.” According to Koning, an increase in the minimum wage to 16 euros would result in the loss of 120,000 jobs.
Higher minimum wage leads to price increases
Employers would incur a large additional cost item with a significantly increased minimum wage. And they can’t always miss that. “Jobs for which the minimum wage is paid are more often with small employers where modest profits are made. They cannot easily bear the extra wage costs,” says Koning. Moreover, higher costs for those employers also lead to significantly higher prices.
According to him, an increase to 16 euros is also expensive, because everyone who earns just a little more than the minimum wage also wants a salary increase. “Ultimately, such an increase may impact half of all employees.”
To 16 euros per hour will cost the government billions
Raising the minimum wage is also expensive for the public purse. According to previous CPB calculations, an increase to 16 euros per hour would cost 10 to 11 billion euros next year alone. This is mainly due to the link between the AOW benefit and the minimum wage. If the minimum wage rises, so will the AOW benefit.
Last year, the government tried to decouple the 10 percent increase from the AOW benefit, but there appeared to be no support for this. Koning: “The link makes a significantly higher minimum wage expensive and misses its purpose. Poverty among the elderly is not great, so the AOW increase is not so urgently needed.”
Could the minimum wage be increased if you (temporarily) separated it from the AOW benefit? “Then a major counterargument disappears,” says Van den Berge. “But I still wouldn’t do it.”
Adjusting taxes can be more effective
Koning and Van den Berge believe that poverty and purchasing power of people with low incomes can be tackled more effectively through taxes. “By increasing the labor tax credit, for example, or as is currently happening through allowances or the child-related budget,” says Van den Berge.
“That may not sound as good, but you can achieve what you want in a much more targeted manner: a higher net income for people with a low income. And the impact on employment will be much smaller because employers will not see their wage costs increase.”
Regardless of the question of whether a further increase in the minimum wage is effective and expensive, Koning also thinks the current minimum wage is high enough. And from an international perspective, the absolute amount is also high.
Furthermore, the minimum wage in the Netherlands is now 61 percent of the median wage (list the incomes of everyone in the Netherlands and take the middle one). A new European directive aims for 60 percent. With an increase to 16 euros per hour, the minimum wage will become 75 percent of the median wage.
2023-09-24 03:08:45
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