The German government plans to introduce a minimum wage and tighten up employment laws to clamp down on workers from new EU member states driving down the cost of labour.

In accession negotiations, Germany demanded and was granted a seven-year employment embargo on workers from new member states. However, since May last year, Polish companies have begun subcontracting out workers to German companies at hourly wages well below German rates.

"We will no longer put up with this practice," said Gerd Andreas, a state secretary at the employment ministry, saying the problem would be sorted out by May. Record 12 per cent unemployment and a crucial state election next month means the government is acting with unusual haste to address the problem.

A working group will investigate the possibility of widening the application of the "Employee Assignment Law", a type of minimum wage law introduced nine years ago in the construction industry.

The law counteracts so-called "wage dumping" by forbidding employers from paying foreign workers below the local union-negotiated tariff.

Any new laws will require the backing of the opposition Christian Democrats (CDU) in the upper house, the Bundesrat. They back the moves in general but are opposed to an across-the-board minimum wage law.