Unconditional basic income given to all citizens

Agreed that it's not possible politically, and probably not legally, to instantly do away with old-age pensions, as there have been promises made to workers of the past and present who have paid into the system. These must still be honored for years to come, and will still have to be paid from general tax revenues since there wouldn't be a PAYGO (pay as you go system) anymore. I suspect that there would be challenges on constitutional grounds if the government tried to say the 800 euro basic income replaces pension payments to retirees since everyone gets the 800 euros, but retired people aren't able to top off their basic income as those still working are able to do. Maybe the 800 euros could be deducted from whatever pension is being paid, but do pensioners pay for health insurance themselves, or is it paid for by the government?

The basic income plan is an expansion of the welfare state if it causes people to work less because they are receiving enough income support to be able to make that choice.

I might read it in German myself.


The one potential silver bullet for the basic income plan is this- with private pensions, workers will have a chance to earn higher returns than they would with their public pensions. That, however, is predicated on workers being willing and able to take on more risk than they have in the past, as well as on future returns.
To be frank, if MT sees the basic income plan as an income improvement for some people, that is an implicit admission that it is an expansion of the welfare state. I suggest tax cuts at the bottom of the income distribution instead. Don't take that as an insult, MT.

Maybe I will run some numbers on this for wage earners at different levels of income and see what I get.

sanford makes some great points above, although the picture with green taxation is far more complex in large part due to the lobbying of producers at the expense of consumers. Another problem is that all these Beamter have civil service protection and thus their numbers cannot be reduced when the basic income system is implemented. You would have to wait for them to retire, by which time they would almost certainly have found new things to administer and regulate.

If you are single and have an average enough rent to pay you'll be picking up EUR 750 ish a month now on Hartz IV.
50 Euros one way or the other isn't going to be spent by these people on licking cocaine of an actresses breasts on a St Tropez yaught, it would go STRAIGHT into the local economy for basics.

You don't have to read the local Munich tabloids for very long, TZ is best for this, to find a story of a pensioner, women mostly, who have worked hard all their lives, paid all the taxes and insurances etc and through no fault of their own are living on 3 old pfennigs a week and a food packet from a church soup kitchen. An 800 basic income would not be an expanson of the welfare state for them, it would be its introduction.

What does a tax deduction mean to people at the bottom of the pile, they've nothing to tax! I'm in favour of reducing the tax burden on regular individuals overall but not through write offs that only the better paid can take advantage of. As Stanford has pointed out, a basic income is a tax cut, it's negative tax. Universal benefits mean that the benefits get to EVERYBODY without means testing and you can recoup them from those who don't need them through taxation. A basic income is no new disincentive to work, we have that disincentve now, with extremely high marginal tax rates at the lower end of the overall pay scale.

As for Beamte, if only the German state had started earlier to end this system...for ALL of them.
Including judges, police, diplomats and politicians!
Beamte getting special pension privileges for which they don't pay, we do.
Stop creating any more and then let nature take its course.

You are talking about a pensioner- these people do deserve decent pensions, especially those whose earlier working years fell during the war and its aftermath; however, let's not forget it has to be paid for somehow, which is my point about an expansion of the welfare state. If you wish to call it an introduction, so be it (it's not like there was no welfare state in the 1960s and 1970s, after all) but it is an increase in government spending if you want to give them additional money and must be paid for somehow.


If you want a negative income tax for the working poor, no problem, I support that, and it is one of the things I had in mind in suggesting cutting taxes for the working poor as opposed the implementation of a minimum wage. I oppose extending a negative income tax to everyone.
One problem with the Werner plan is that an end to public health insurance is really going to hurt the working poor who will now have to buy private health insurance, unless those rates drop sharply (dubious proposition considering they won't be cherry-picking the best customers anymore). This is particularly true for the working poor who have kids, or where only one spouse is working. You are right that marginal tax rates are too high at the bottom, but a greater reliance on taxing consumption will hit those at the bottom of the income distribution hardest. Trust me when I tell you the numbers in the Werner plan don't add up, especially since we have already agreed to give the elderly poor a larger pension. We add yet more government spending. meaning an increase in taxation to pay for it, yet Werner wants to sharply narrow the tax base, primarily to consumption. The VAT is regressive, and a sharp increase in it will more than wipe out what our working poor and poor pensioners will get as supplements to income or pensions.


I am in complete agreement with you on this, MT. Think of Hans Eichel (SPD)'s 7684 euro a month pension demand.

The funding of the basic income invho should NOT come from VAT alone.
As Stanford has pointed out above there is an intricate working tax credit system in the UK: It is innefficient and often leaves people in the lurch.
Direct universal benefits are better at improving incomes where it is needed most.

I do think tax is too high on the lowest paid certainly but that isn't the real reason for there being working poor.
The reason is outragously low rates of pay.
We are closer in Germany to getting a minimum wage through than a universal income and that should be a primary short term goal I think.

As for health reform, it's quite simple.
Let the better off pay into private insurance if they want the extras of an oberarzt, guaranteed single room or naked go go girls writhing on their hospital bed.
EVERYONE should be paying X % of their income into ONE SINGLE PUBLIC krankenkasse.

MT, the proposed minimum wage will cause some low skill jobs to be lost, and prevent many more from being created. It will probably be somewhat inflationary, although likely only very modestly. It will also worsen the already-high tax wedge on low skilled labor (the difference between what the employer pays, including social contributions and the after-tax pay received by the employee). Sorry, that is just the way it is. The negative income tax doesn't worsen the tax wedge on labor, and has, in and of itself, no discernible negative effects, but you still have to answer how you are going to pay for it.

Ten years ago they introduced a minimum wage in the UK and the sky didn't fall down!
And it lifted the pay of a lot of low paid people.

Universal income isn't my main interest but I don't see it costing a lot.
For those in paid employment, the tax free allowances would go and for those out of paid employment, it wouldn't be a huge rise.

But a simpler, fairer system.

But NOT funded via VAT, which I think as you said Conq. is a regressive tax.

MT, the UK has had stronger economic growth in the past decade than Germany probably will in the next decade, a more flexible labor market, AFAIK, a lower tax wedge on labor, and more of its jobs are in non-tradable services, where the low skilled employment that would be most affected my the minimum wage is employed. I don't have to tell you that Deutschland ain't Merry Ole England.

When the effects on employment will really start to show is when the economy turns down.

The people who would benefit most from a minimum wage in Germany of €7.50 gross an hour are working in non tradeable services too.
IIRC the tax wedge has recently been worsened for low paid workers in the UK as well.

Generally UK workers have less protection than workers in Germany ie the market is more "flexible".
But I'm not sure that's an issue. You either need paid labour or you don't and the rate in Germany would then be minimum € 7,50.

As for jobs disappearing in the low end sector, I don't think so.
The demand for the good of that labour will still be there just cost more.

And I think those extra costs should be borne by the profits of the employer not through inflation.

MT, what happens when the price for something rises, AOTBE? The quantity demanded decreases. There is also the possible knock-on effect of the minimum wage on those already making 7.50 an hour, and will also want a raise.


And with lower profits, investment will be lower, i.e., fewer jobs created. Employers are risking their own capital and do not want to see profits reduced. They will raise prices and/or cut costs.

I don’t think workers already on 7,50 will demand pay rises just because a minimum wage of 7,50 came in. From what I hear from people on the ground in the UK, the minimum wage has become a kind of standard for generally low skilled low paid work to the extent of holding ages down when they “should� be rising according to the market.

The increase of pay per hour divided by the amount of goods produced isn’t going to be that big to produce justifiably inflationary pressures I don’t think and should not choke off demand. Even if we were happy for employers not to pay decent wages before taking a profit, 10 cents on a cup of coffee might be a price worth paying. But as I said, I think the employers should be picking it up.

In the case of the UK, that might be because of an increase in the supply of labor from the ten countries that entered the EU in 2004. At any rate, I would think that you would be opposed to seeing wages held down artificially.


That depends. If you have to give someone a raise from 6 euros to 7.5 per hour, it very well might, especially if wages are your chief cost and your profit margins are low.

Choke is too strong a word, but the problem is the effects of lower unskilled unemployment and higher inflation are going to be felt hardest by the very people you are trying to help. The negative income tax is a better way to accomplish what you would like.


Whether or not a particular wage is decent is a matter for debate. No one wants to see low salaries, but the effect on employment and/or inflation is, in my opinion, likely to be of greater significance than you think it will be. The effects will be felt throughout the economy, and inflation may have already begun an upward trend that would be further exacerbated by the blunt weapon of the tax wedge-augmenting minimum wage.

You never seem to moan that giving the better off tax cuts is a "blunt weapon" .

Whetehr or not easier access to the UK labour market for Czechs and Poles etc was used to hold down UK wages or becasue of genuine labour shortages in the UK is a matter to be debated for sure.

First of all, we haven't been talking about the tax situation faced by the upper end of the income distribution; however, if you must know, I support a flat tax with a generous amount of income at the bottom excluded from income tax, and a negative income tax where necessary. No tax loopholes, etc. No economic and investment decisions made solely for tax purposes.

As for the tax cuts that have aroused your ire, it depends on several factors as to whether or not they are a blunt weapon; however, the truth is that the upper end of the income distribution is of greater macroeconomic significance. I generally support looking at reducing government spending before tax cuts, but the latter is almost always easier to accomplish than the former. I oppose taxes on capital where possible because these have the most negative effect on economic growth and investment and also often result in double taxation.


Don't know if that was the intent but I think the fact that it did hold down wages at the bottom is hard to dispute.

What kind of employer would see a huge rise in overall costs if the rate of pay of his staff jumped from EUR 6,00 to EUR 7,50 an hour?
I can think of an exaample but I'll see if you say it first and think of the implications.

As an aside front page on the WSJ Europe today

New Trend in Germany: Food Handouts for the Poor

the article is here but it maybe subscrition only (rumored to be changing under Murdoch)

But the main gist is that with low skill manufactering jobs moving east and Hartz iV reform starting to bite the simple fact is that people are going hungry. As the article states it's adjustment for Germans to see food banks and people going hungry. It also took a while for Germans to make the cuteral shift to having the homeless and the hungry around, there used to the goverment providing a good living for everyone.

In case it's not accessable here are a few quotes


and


and

more pics

can seem to only add one pic at a time.

Sorry guys I am in a rush it is my birthday this weekend so off to meet the wife for something to eat: a quick point to the debate without having read all the points above.

I am with MT on the minimum wage. Glad to say, I am a repentent Right-winger on the minimum wage as we heard all the same arguments in the UK in the 90s - I even made them myself!!!

After unemployment did not go up in the UK I tried to work out why and this is what I came up with. I would guess most low paid jobs are actually in the service sectors i.e. cleaning offices, cutting peoples hairs, picking fruits, check out girls, care assistants etc. These jobs are not actually in the international market - well not when you do not live on the border and have a choice between a Polish hairdresser and a German one. So in the end a minimum wage actually is a redistrutes money from the consumers of services to the provider of services. So in general it hurts the middle or richer classes as they consume services more than the poorer members of society. The minimum wage puts a floor to competing on price i.e. low wages and as all firms pay at least the minimum unless people consume these service less there is no increase in unemployment in the said industries.

In the area of manufacturing or exportable goods, we do not compete with third world wages anyhow...so most of these industries have moved up the producton chain. I think the average wages in manufacturing are quite high lot higher than the service sector. So once again it is a redistributive measure...

After seeing what happend in the UK I am defo in favour of a minimum wage and I do not necessarily think it has to be inflationary when the rate is not set too high. What the rate should be is more complicated queston...

Stanford - Rightwinger with a heart...

PS. forgot to add about freedom...a citizens income would also promote and help women/men who stay at home to look after their kids or carers who have to look after their parents.

Stanford, you not considered two other scenarios: the minimum wage is set below the market rate, thus having no effect at all or the industries where the minimum wage really bites (labourers, cleaners, seasonal farm workers etc) work off the book and don't actually receive minimum wage.

Also , a lot of services, social goods are provided to you by volunteers. A social wage might enable more people to be able to provide more social goods in that way.

Anyway, any of of you neo-liberal cunts earning more than € 7.50 an hour which is is obviously SO much to live on in Munich;
slip me the money and I'll put it to the GDL strike fund.

The whole cash in hand thing is an associated issue.
I think cash in hand work is the lubricant of the economy but I'll come back to that later cos my boyfie is waiting.

The politicians love the idea of a minimum wage because it seems like a free lunch that allows them to escape responsibility for their own policy failures by instead blaming businesses for paying salaries which are allegedly too low. OG makes a good point about setting the MW level because how in the world can anyone know the appropriate salary other than the market, which is the collective sum of everyone's knowledge? Does Kurt Beck know better than someone running a business with their own capital at risk and an employee working in a particular sector what an appropriate wage or salary is? Of course not.

As the article posted by TH alludes (in part), the real problems are poorly functioning labor markets, overregulation, age/gender/racial discrimination, and the inefficient tax system. The politicians should work on fixing these problems instead of dictating a wage to employers in certain sectors of the economy, regardless whether that wage is above or below market equilibrium. Even if it does in fact boost pay for low skilled workers, the minimum wage is an inefficient way of doing it- probably the most inefficient because of the increased taxes and social contributions that employers will have to pay and will never make it into the paychecks of the workers. It would not surprise me if the government wants the minimum wage as a stealth tax increase on businesses. They have already raised the VAT, capital gains taxes will rise in 2009, and taxes on inherited property have also risen.

The point has been made that those affected are in non-tradable service sectors. The largest cost of doing business in these sectors is usually labor costs, so you will likely see effects in one direction or another with MW, and as MT has pointed out in the case of the UK MW, the MW can end up being a ceiling as well as a floor.

I support the negative income tax and deregulation instead of the minimum wage, whose effects will likely exacerbate the negative effects of German government policy on the markets for unskilled labor.

Incidentally, I would expect to see more working under the table if the MW becomes law, which is another undesirable side effect.

MT, the provision of "social goods" by volunteers would not increase solely because of a minimum wage. Volunteers aren't receiving a salary, thus they aren't motivated by the MW. People volunteer because they want to do so. If you want to stimulate private charity and volunteering, you give tax deductions for contributions to charity.

Happy Birthday to stanford!

Back on topic: I don't think a minimum wage would help much. There are already minimum wages for specific branches, i. e. construction, industrial cleaning and different trades. A general minimum wage would have to differ regionally to reflect different living costs, and it would need to be lower near the Polish/Czech border, otherwise there will be even more jobs exported or Schwarzarbeit will increase.

I still think a basic income helps best to avoid pictures like the above becoming normality. It's noteworthy that there are supporters across the political spectrum. The Green party seems divided about it, the liberal FDP has been talking about a Bürgergeld (a negative income tax) for quite a while, and the Christian-Democrat Prime Minister of Thuringia, Dieter Althaus, proposes a Solidarisches Bürgergeld.

This model differs considerably from Götz Werner's basic income idea, mainly by not rising VAT and reshaping income tax instead. Althaus proposes to hand out 800 € (500 € for children) to every German and permanently residing EU citizen (he says this needs to be discussed further), with 50 % income tax on everything the receiver earns in addition. Alternatively, 400 € and 25 % on additional income. There would also be a 200 € health insurance contribution to be paid by everyone. For those with higher income, this model would mean a relatively flat tax of 25 % and a reduction of their taxable income by 200 €, which results in a basic tax allowance of 9600 € (now 8000 €).

The pensioners would also get 800 € Bürgergeld minus health insurance plus an individual pension according to their contributions to the pension system, but capped at 1200 € all in all.

Althaus estimates that with a current welfare budget of 700 bill. € and the income tax at 50 resp. 25 %, the Solidarisches Bürgergeld could be funded.

I do not see how you can blame low wages on the government just as you can not blame high wages - we live in largely capitalist society - with private individuals and firms entering into contracts.

All a minimum wage is trying to do is to redistribute money to the poorest and to stop the absurb situation now where tax payer money subsidies low wages; better let the people who consume the products or service pay in terms of increase prices for the said goods. Also, it is a red herring to say how the Finance Minister do not know what should be the right minimum wage as we have the same problem with all taxes...i.e. when do employment taxes destroying too many jobs or when not - when will an higher indirect tax kill to much economic activity vs the money it raises. These are the type of questions Government face all the time and make a judgement on.

I understand the argument against a minimum wage and have argued them myself in the past but if a free market and smaller government economy like the US can have minimum wage- I do not see why Germany can not have one.

Any law or regulations risks people or firms trying to avoid it...that in itself is not a sufficient argument against the law. If you on the other hand said most would or that the law would not be enforced then I will be more willingly accept that as an argument against... But ultimately it is all conjecture. From what I see minimum wages are easy to enforce because the employees can inform on the said firm (and it is easy to investigate) with then the said firm being fined accordingly. The right to strike, the right to sick leave, the right to holiday all increase the costs of business and so will a minimum wage for some firms... Like most things it is a political question with a political answer...i.e. it is worth doing it or it is the fair thing to do...

While there are many causes of the wage restraint of recent years in Germany, it is fair to say that the government is to blame for its failure to reform a system which taxes labor to heavily. Since Gérmany is a member of a currency union, it cannot depreciate its currency to maintain competitiveness lost by the high taxes on labor, therefore the real exchange rate in the guise of unit labor costs mucst decline, which it has. Then the government and people like MT flip out about that and say that salaries must be raised by government diktat when government policy is the problem in the first place. The wage moderation of recent years has had a lot to do with Germany's relatively strong economic growth in the ca. last two years. With the stealth inflation that accompanied the transition to the euro in 2002, real wages took a hit, although the ECB strenuously insisted otherwise in order to keep confidence in the euro from being underrmined (and thus making its job of making monetary policy a whole lot more difficult). The introduction of the euro is a government policy, so government is to blame for the aforementioned inflation.

There is more to it than this, but I will leave it at that on that statement by stanford for now.


taxpayer money will probably be subsidzing more low skilled unemployment if the minimum wage is set a 7.5 euros per hour, especially in the poorest parts of Germany, where more unemployment (or less employment) is especially unwelcome.
Stanford, setting taxes, raising revenue, and making budgets is not an exact science, which is why governments are always making adjustments, and even then they often are badly off the mark. It is no red herring to say Peer Steinbruck shouldn't be trying to run an aspect of anyone's private business- he has enough to worry about already. Also do not ignore the disincentives of the tax wedge.

BTW, in what ways does the German government subsidize low wages that can be ended by the imposition of the MW?


The US has a mixed economy, and there a much larger proportion of the people affected by the minimum wage are teenagers or college students than is the case in Germany. The US minimum wage, despite several increases, has not kept up with inflation since the late 1960s- I think its peak purchasing power was around 1968.
The tax wedge on labor is much higher in Germany than in the US and labor flexibility is much lower, hence Germany will be far more exposed to the negative side effects of a minimum wage hike. At any rate, the MW has priced some people out of work in the US.


If the MW can be avoided effectively, that needs to be taken into account when deciding whether to adopt it or not. I don't know to what extent it can here in Germany- maybe someone else can show some empirical study on that.

Three quick points.

1. Your comments about wage deflation is about German general macro policy over the last few years whilst minimum wage is lagely internal redistributive policy. None the less, I do not disagree with a lot what you wrote here (Euro etc.) but I just do not see that the cleaners, hairdressers and care assistants as key to the external competitiveness of the Germany economy vis-a-vie the Euro area.
2. Good point about Eastern Germany. That is why I would most probably bring in a regional minimum wage rather than a national one. I do not like national wages are they tend increase the likelihood of unemployment in those areas with a lower cost of living or not help those in the higher cost of living areas if it is not set high enough. In terms of detail - it could be left to the Lander to set the level for their areas.
3. Reform. I am all for a more flexible labour market and would see a move in that direction also a good thing. But you can have both largely flexible labour markets and a minimum wage. Your comments about the US are correct but I have many times pointed out the devil is in the detail i.e. what level and to whom it should apply. The UK government tried to get round this by introducing two levels those below 21, I think, and those above. The German government could investigate something similiar. My comments about subsidizing are more directed at the UK that I know has in-work benefits for low paid - I think the German government will also have such policies as well especially as my wife´s brother receive help paying his rent desptie working full-time.

You do make some interesting points but taken as a whole I do not see them as convincing enough not to introduce a minimum wage; we can discuss the details but the principle in general is a good one. In my view a MW would be better introduced with other reforms. I saw in the Newspaper that (off the top of my head)...Spain has one, France has one, Ireland has on, Sweden has one, even the UK has one - so can the German have one.