Using the Minimum Wage to Beat the Competition

Germany is considering a new government-imposed minimum wage — a price floor in the labor market — to apply to postal carriers and related workers.

One of the major proponents of the plan has been one of Germany’s biggest employers — its privatized postal service, Deutsche Post.

One might wonder why a big employer is pushing a plan that might raise its average variable cost. The reason is that the German Post, which is a high-wage employer, faces increasing competition from lower-cost carriers. If the minimum wage is imposed, it will not raise Deutsche Post’s average variable cost by much, since most of its workers already make more than the proposed minimum wage; but it will raise its competitors’ costs.

That will give Deutsche Post an advantage over its competitors — or at least reduce its disadvantage. It will be able to compete more successfully against its formerly lower-cost competitors.

Deutsche Post is thus proposing to help workers — and help itself!

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  1. Kevin says:

    I believe WalMart actually has a similar position.

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  2. SIlas Russell says:

    This is interesting. I wonder that if we had a livable minimum wage in the US, this could serve to even the playing field more for more ethical employers like Target and Costco against Wal-Mart, which, in my opinion, has been a detriment to our nation.

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  3. starkdawgs says:

    This is not unlike what a lot of the U.S. unions support. Although few of their members make minimum wage, most of their workers have their much higher wages tied to minimum wage. In other words (for simplicity) if minimum wage were $5 an hour, certain workers have a guarantee that their position will pay a minimum of 3x minimum wage. If minimum wage goes up to $8 an hour they receive a minimum of $24 an hour without having to haggle or bargain (or be any better at their job).

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  4. Jose says:

    Would this have any impact on layoffs and unemployment?

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  5. Sam says:

    Oh, great idea. Let’s increase everyone’s costs so all we have are large companies and no one will ever be able to compete again.

    Sounds like the electoral system in the US.

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  6. mgroves says:

    So instead of them actually improving/competing with low-cost carriers, instead they want to bring better carriers down to their level. And this is good?

    The minimum wage, like most price controls, is a bad idea.

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  7. brandon says:

    Jose:

    In the short term, yes.

    In the long term, unemployment will reach equilibrium and Germany will have higher inflation (due to artificially increased wages).

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  8. Mr. Stupid says:

    I take it that Deutsche Post is not a quasi-government entity like it is in the US? Do they really have competitors? How many companies are clamoring to deliver a 2-mark envelope?

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