Minister’s Minimum Wage Plans Would Be Fatal For Germany’s Startup Scene

By Christoph Gerlinger |

 This is a guest column from Christoph Gerlinger of the German Startups Group

The startup scene is an important engine for Germany as a business location. In Berlin alone, more than 60,000 workers are employed in the fledgling digital economy, which has also created an estimated 100,000 jobs through the multiplier effect. In no other industry has the creation of new jobs been as strong as in information and telecommunications technology.

This idea has taken hold with top politicians from both parties in Germany’s coalition government, the Social Democrats (SPD) and the Christian Democratic Union (CDU, together with its Bavarian sister party, the CSU) of Angela Merkel. In recent months, several of them – from Transport Minister Alexander Dobrindt and Economics Minister Sigmar Gabriel to Finance Minister Wolfgang Schäuble and Chancellor Merkel herself – have spoken of a commitment to developing the startup scene and its digital pioneers.

The proposed federal minimum wage of €8.50 per hour – which would also apply to interns, known in German as Praktikanten – would have fatal consequences for the startup scene. In nearly every startup, these Praktikanten are working for less money or are waiving part of a full salary, and mostly for longer periods than the proposed minimum wage exemption of six weeks.

In young Internet companies, for example, the amount of salary is usually not the decisive factor for would-be employees. Rather, it is non-pecuniary criteria such as creative tasks, flat hierarchies, higher degrees of freedom, a steep learning curve, numerous opportunities to have a real impact on a company, the prospect of lucrative permanent employment with the same criteria, and last but not least existing or potential holdings in the kinds of growing companies that regularly produce young Internet millionaires, even in Germany.

These are the reasons why some highly-qualified graduates happily choose an internship at a startup over a well-paid permanent position in the traditional economy. In this way they can take their first footsteps in the digital world, which brings with it the chance to start their own business.

The decision to go for such a placement is almost always made by someone who knows the score and can make a clear judgement. The paternalism of politicians is not needed in any way. The most highly-qualified candidates are not at any risk of being exploited, as Labour Minister Andrea Nahles probably assumes, but rather, they often have a job offer from a strategy consulting company, investment bank or law firm on the table or are even giving up such a job which they have lined up in order to work for a startup.

Young startups also do not often have a cushion of capital that allows them to straight away pay market rates for top notch talent in product development and winning market share. That does not happen for some time. A minimum wage would therefore not be effective at all.

Indeed, with the proposed minimum wage, they simply could not employ as many people and the startup project would be made utterly impossible. Often the founders and managing directors pay themselves no wage initially, or only a very small amount to cover the cost of living, which in view of the resulting workload – usually more than 40 hours per week – would also work out as less than €8.50 per hour. Merely excluding university students working as Praktikanten for six weeks or less from the minimum wage is not going to be of much help to the startup scene. Believing that such an exception would be effective is completely unrealistic.

Managing directors should be excluded from the minimum wage and Praktikanten too for up to six months, the exception should not be dependent on whether it is a course-related internship and investment opportunities and options to purchase company shares should be included in an appropriate manner in the calculation of hourly pay.

The introduction of the minimum wage without such exceptions and arrangements would be doing the German economy and employees in Germany themselves a disservice. The startups which had not yet established themselves as stable businesses would immediately be forced to move abroad, and new startups would no longer look at this country as a good place to set up shop. In this way, politicians, out of supposedly noble motives, would be squandering the massive opportunities for the sustainable development of a globally-relevant innovation hub, which would mean throwing away job creation and direct government income from the creation of wealth, such as tax revenue from the individual assets of founders.

If the supposed political advocates of the startup scene, Ministers Dobrindt, Gabriel and Schäuble and Chancellor Merkel, are not determined to stop Minister Nahles’ plan in its current form, they would expose their expressions of support to the startup scene as the mere payment of lip service.

Christoph Gerlinger is the founder and CEO of the German Startups Group Berlin AG, a young Berlin-based venture capital provider. He previously founded two startups himself, building them up to around 200 employees before taking them to the stock market.