German Companies Anticipate Job Cuts Due to Minimum Wage Increase, Ifo Survey Finds

According to a recent survey conducted by the Ifo Institute, a significant portion of German businesses directly affected by the latest minimum wage increase are considering workforce reductions. The findings indicate that more than one in five companies that pay wages near the new minimum threshold plan to decrease staff as the mandated hourly wage rises by EUR1.08 to EUR13.90 at the start of January.

The Ifo Institute's latest economic survey reveals that 21.7% of companies directly impacted by the new minimum wage expect to implement job cuts. However, only 37% of surveyed firms are directly affected, defined as having employees earning less than the forthcoming minimum wage. Among these businesses, many are also looking to reduce investments and increase prices to offset rising labor costs.

The upcoming increase represents a notable jump in labor expenses for sectors heavily reliant on minimum wage workers. Ifo Institute experts note that the timing of the increase coincides with a period of economic weakness, potentially amplifying its effects on employment and business operations.

Compared to the last significant change in 2022, corporate responses to the 2025 wage adjustment are notably more pronounced. In 2022, when the minimum wage rose by EUR1.55 to EUR12 per hour, only 10.6% of directly impacted firms anticipated staff reductions. This year, that proportion has more than doubled. The survey also found that 27.7% of affected businesses now plan to scale back investments, compared to 15% two years ago. In terms of pricing, 49.7% are considering raising prices for goods or services, slightly fewer than the 54.8% observed during the previous increase.

Many companies expect the higher wage floor to negatively affect their financial performance and competitive edge. Over half of the businesses surveyed anticipate a decline in profitability, while more than a third foresee a reduction in their ability to compete within their respective markets.

The survey highlights that certain industries are more exposed to the changes than others. The hospitality sector is most affected, with 77% of businesses in the industry paying below the new minimum wage, followed by the retail sector at 71%, and the textile and food industries at 62% and 59%, respectively. In industries such as mechanical engineering and construction, where higher sector-specific minimums already apply, fewer than 20% of businesses face direct impacts from the change.

Despite the significant focus on business strategies and staffing levels, the proportion of jobs directly affected by the minimum wage hike remains relatively limited. Among the companies that must adjust, 15.5% of positions will be impacted. Across the broader economy, only 5.8% of all jobs will be subject to the new minimum. The hospitality industry stands out, with nearly a quarter of all positions affected by the change.

In response to the survey and the anticipated business reactions, labor representatives have called for a constructive approach to the new wage standard. They emphasize that the minimum wage increase was a joint decision reached by the minimum wage commission, which includes both employer and employee representatives. Labor groups further point out that previous predictions of significant job losses following minimum wage increases have not materialized and that employment levels have, in fact, continued to rise in recent years.

The ongoing discourse reflects the complex balance between supporting workers through higher wages and maintaining business competitiveness and employment levels, particularly during periods of economic uncertainty. As the implementation date approaches, affected sectors will monitor the real-world impacts and adjust their strategies accordingly.