MIN WAGE: Germans plan price hikes, staff and work hour cuts

German companies that will be affected by the minimum wage as of 1 January 2015 are planning to increase their prices (26%), reduce bonuses (23%), reduce their payrolls (22%), reduce working hours (18%), and scale back their investment activity (16%), research showed on Thursday.

A survey of 6,300 businesses conducted by the Ifo Institute showed that most companies are planning to implement a combination of these measures, and only 43% of the firms plan no changes at all.
According to the Ifo survey, firms in the catering and hotel industry (72%) will be mostly affected by the minimum wage, followed by retailers (43%), service providers (31%), and manufacturers (21%). The survey also found that east German companies will be far more deeply affected than their counterparts in the west of country by a ratio of 43% to 24%. In retailing, the figure was as high as 61%.
Service providers, especially those in the catering and hotel industry, mainly intend to respond by increasing prices (31%). In retailing, responses to the minimum wage were primarily cited as staff cuts (29%) and shorter working hours (33%). In manufacturing, staff cuts (26%) ranked just above reductions in bonuses (23%) and raising prices (23%).
One reason service providers tend to respond to the minimum wage with price increases rather than staff cuts is that they are less frequently exposed to international price competition. Service providers are therefore more likely to be in a position to implement price increases.