Firmly on the Road to Ruin

Well, we warned them not to do it. You can read it all in “How to Destroy Germany’s Economic Gains” and “Germany Rolls Back Labor Reforms”. As we pointed out on these occasions, economic laws cannot be suspended by political fiat. Germany has managed just fine for hundreds of years without a legislated minimum wage. However, when the new coalition agreement between Germany’s pseudo-Conservatives and the Socialists was made, the socialist faction finally saw an opening to push the minimum wage through.

The consequences were easy to predict: many unskilled workers would lose their jobs and become wards of the State forever. Minimum wages are not only truly hair-raising economic nonsense, they are moreover a violation of people’s right to freely enter into contracts. An unskilled worker is no longer even allowed to offer his labor at less than the minimum wage, since that would amount to “unfair competition”. A new underclass is thus created in Germany, and the country’s hard-won gains in terms of labor productivity are endangered. We can expect further side effects from this, such as e.g. rising crime rates.

Of course the socialists love it (even if they would never say so out loud). Higher unemployment means more people will depend on handouts from the State – and these people are regarded as a natural reservoir of votes for the socialists. Apparently they have forgotten that there was once a time when precisely such an underclass actually chose quite a different kind of political party, one that eventually made short shrift of all socialists.

Now we have the first empirical confirmation that the minimum wage is indeed about to wreak economic havoc on a breath-taking scale.

Taxi Fares Rising up to 60%, up to 70,000 Drivers to Lose Their Jobs

As German news magazine Der Spiegel reports, the first victims are consumers:

“Taxi rides in Germany are to become noticeably more expensive. In some regions, for example in Mecklenburg-Vorpommern, the price increase could be as high as 50 to 60 percent. “The national average of the tariff increases is going to be 25 percent,” the president of the German Taxi and Car Rental Association, Michael Müller said. He justified the heavy increase in passenger transport prices with the minimum wage. The tariff increases must be approved by the relevant city or county authorities.

From 1 January 2015, the legal minimum wage of 8.50 euros per hour applies nationwide to 200,000 to 220,000 taxi drivers. Currently, the average wage per driver is between € 6,00 and € 6,50 according to the association.

“Süddeutsche Zeitung” in a survey of taxi associations noted that taxi companies have applied for fare increases of up to 30 percent already in hundreds of cities and counties.”

So consumers will pay through the nose for the minimum wage hike. What is happening in the taxi industry is of course going to happen in many other labor-intensive service industries that employ a great many low-skilled workers.

Taxis in Berlin – fares are going to rise by up to 60% due to the new minimum wage.

(Photo via Getty Images)

So what about the drivers? Will at least their jobs be saved? No, they most definitely won’t:

“However, the association also fears that by the end of the year, 50,000 to 70,000 taxi drivers could lose their jobs because companies can not bear the increased labor costs. According to the association, there are 28,000 taxi companies in Germany with 58,000 vehicles.  In Hannover, a taxi company fired its 65 drivers as a precaution after the minimum wage was announced, the case will be heard before the Labor Court in November.”

But, but … isn’t the minimum wage is a “sign of great social progress”, as the Social Democratic Party insisted when it celebrated its success in finally establishing it in Germany?

We believe some 50-70,000 taxi drivers will beg to disagree rather vehemently by the end of next year, and they won’t be the only ones disagreeing. So-called “pro-labor” legislation never achieves what it is supposed to achieve.

The market can either bear a certain level of labor costs or it can’t. If they become too high, businesses go bankrupt, and workers lose their jobs. It’s as simple as that. Were the Social Democrats unaware that all over Europe there is extremely high institutional unemployment precisely because of such nonsensical regulations? Are they really so economically illiterate that they don’t realize that one cannot simply increase prices by political fiat without consequences?

The labor courts in Hannover and elsewhere may well be hearing a lot of cases about employees losing their jobs on account of the minimum wage over the coming year or two, but if the companies concerned cannot afford to pay, this is only going to be a waste of time and effort.

Conclusion:

Germany’s politicians have forgotten that just as no political decree can ever force the sun to rise an hour earlier, no political decree can ever alter the laws of economics. Germany has turned from being “Europe’s sick man” to becoming Europe’s economic locomotive over the past decade, and its labor reforms were the main reason for this transformation. But politicians can never leave a good thing alone. Once the pressure to enact reform is gone, they start all sorts of expensive foolishness, from Germany’s utterly disastrous “green energy” policy to introducing the minimum wage.

This is likely to eventually bring Germany back to square one. It may take a while until it becomes Europe’s “sick man” again, mainly because so many other European nations are in even worse shape from a structural point of view, but its political leadership is evidently working overtime to get there.

Sigmar Gabriel, chief of Germany’s Socialist Party (SPD) – the adoption of the minimum wage was one of his party’s main conditions for joining the coalition government.

(Photo v ia AFP)