IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2432.html
   My bibliography  Save this paper

Minimum Wage Incidence: The Case for Germany

Author

Listed:
  • Andreas Knabe
  • Ronnie Schöb

Abstract

Using data from the 2006 wave of the German Socio-Economic Panel (GSOEP), this paper analyzes how a minimum wage affects employment, wage inequality, public expenditures, and aggregate income in the low-wage sector. It is shown that a statutory minimum wage of EUR 7.50 per hour would cost 840,000 low-paid jobs and increases the fiscal burden by about EUR 4 billion per year, while household income rises only by EUR 1.1 billion per year. Poor households, i.e. those eligible for Unemployment Benefits II, do not benefit from a minimum wage at all. Comparing the effects of a minimum wage with different types of wage subsidies that require the same additional public expenditures, the government can ensure more favorable employment – depending on the subsidies’ incidence – and income effects. Wage subsidies also allow a more equal income distribution than statutory minimum wages. Combining a minimum wage with a wage subsidy, similar to the French minimum wage system, is extremely costly while such a policy is inferior to wage subsidies in all respects.

Suggested Citation

  • Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wage Incidence: The Case for Germany," CESifo Working Paper Series 2432, CESifo.
    • Handle: RePEc:ces:ceswps:_2432
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2432.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eswar S. Prasad, 2004. "The Unbearable Stability of the German Wage Structure: Evidence and Interpretation," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 354-385.
    2. Mauro Guillén & Adrian Tschoegl, 2002. "Banking on Gambling: Banks and Lottery-Linked Deposit Accounts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(3), pages 219-231, June.
    3. Gernandt Johannes & Pfeiffer Friedhelm, 2007. "Rising Wage Inequality in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(4), pages 358-380, August.
    4. Blinder, Alan S, 1988. "The Challenge of High Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 1-15, May.
    5. Guy Laroque & Bernard Salanie, 2002. "Labour market institutions and employment in France," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 25-48.
    6. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
    7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    8. Carla Marchese, 2009. "Rewarding the Consumer for Curbing the Evasion of Commodity Taxes?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(4), pages 383-402, December.
    9. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
    10. Daniel S. Hamermesh, 1980. "Factor Market Dynamics and the Incidence of Taxes and Subsidies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(4), pages 751-764.
    11. Neumark, David & Wascher, William L., 2007. "Minimum Wages and Employment," Foundations and Trends(R) in Microeconomics, now publishers, vol. 3(1–2), pages 1-182, March.
    12. Bahro A. Berhan, 2005. "The High Costs of Controlling GST and VAT Evasion," Development Discussion Papers 2005-06, JDI Executive Programs.
    13. Karl Brenke, 2007. "Zunehmende Lohnspreizung in Deutschland," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(6), pages 73-79.
    14. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 843-881.
    15. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2006. "Redesigning the Welfare State," Books, Edward Elgar Publishing, number 12596.
    16. David Neumark & William Wascher, 1995. "The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records," NBER Working Papers 5224, National Bureau of Economic Research, Inc.
    17. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
    18. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," Kyklos, Wiley Blackwell, vol. 59(4), pages 557-577, November.
    19. Wolfgang Franz, 2007. "Ein zielgerichtetes Kombilohnmodell: Der Vorschlag des Sachverständigenrats," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(04), pages 24-28, February.
    20. Joachim Ragnitz & Marcel Thum, 2007. "The empirical relevance of minimum wages for the low-wage sector," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(02), pages 35-37, July.
    21. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(4), pages 643-663, December.
    22. Rürup, Bert, 2008. "Für einen moderaten allgemeinen Mindestlohn," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 30219, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    23. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    24. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
    25. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2006. "Activating social welfare 2006 - the combi-wage model of the Ifo Institute," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 59(02), pages 06-27, January.
    26. Gerhard D. Kleinhenz & Stefan Bauernschuster, 2008. "Protection from low wages or job destroyer:Pros and cons of a statutory minimum wage," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 61(06), pages 45-49, March.
    27. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2007. "Die zentralen Elemente der Aktivierenden Sozialhilfe," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(04), pages 48-53, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hanna Frings, 2013. "The Employment Effect of Industry-Specific, Collectively Bargained Minimum Wages," German Economic Review, Verein für Socialpolitik, vol. 14(3), pages 258-281, August.
    2. Adolf STROOMBERGEN & Peter HALL, 2010. "General Equilibrium Analysis of Bio-Energy Options," EcoMod2010 259600160, EcoMod.
    3. Kai-Uwe Müller & Viktor Steiner, 2013. "Distributional Effects of a Minimum Wage in a Welfare State: The Case of Germany," SOEPpapers on Multidisciplinary Panel Data Research 617, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Knabe Andreas & Schöb Ronnie & Thum Marcel, 2014. "Der flächendeckende Mindestlohn," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(2), pages 133-157, June.
    5. George Economides & Thomas Moutos, 2014. "Minimum Wages, Capital Accumulation and Worker's Incomes," CESifo Working Paper Series 4821, CESifo.
    6. Kragl, Jenny & Schöttner, Anja, 2011. "Wage floors and optimal job design," Bonn Econ Discussion Papers 01/2011, University of Bonn, Bonn Graduate School of Economics (BGSE).
    7. Robert C. M. Beyer, 2017. "The Performance of Immigrants in the German Labor Market," SOEPpapers on Multidisciplinary Panel Data Research 892, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. Koch, Andreas & Kirchmann, Andrea & Reiner, Marcel & Scheu, Tobias & Boockmann, Bernhard & Bonin, Holger, 2018. "Verhaltensmuster von Betrieben und Beschäftigten im Zuge der Einführung des gesetzlichen Mindestlohns," IZA Research Reports 84, Institute of Labor Economics (IZA).
    9. Müller, Kai-Uwe & Steiner, Viktor, 2010. "Labor Market and Income Effects of a Legal Minimum Wage in Germany," IZA Discussion Papers 4929, Institute of Labor Economics (IZA).
    10. George Economides & Thomas Moutos, 2014. "Minimum Wages as a Redistributive Device in the Long Run," CESifo Working Paper Series 5052, CESifo.
    11. Schmitz, Sebastian, 2017. "The effects of Germany's new minimum wage on employment and welfare dependency," Discussion Papers 2017/21, Free University Berlin, School of Business & Economics.
    12. Kai-Uwe Müller, 2010. "Employment Effects of a Sectoral Minimum Wage in Germany: Semi-Parametric Estimations from Cross-Sectional Data," Discussion Papers of DIW Berlin 1061, DIW Berlin, German Institute for Economic Research.
    13. Mueller, Kai-Uwe & Steiner, Viktor, 2013. "Behavioral effects of a federal minimum wage and income inequality in Germany," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79784, Verein für Socialpolitik / German Economic Association.
    14. Andreas Knabe & Christine Lücke & Ronnie Schöb & Marcel Thum & Lars Vandrei & Michael Weber, 2014. "Regionale Beschäftigungseffekte des Mindestlohns im Freistaat Sachsen," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(05), pages 03-12, October.
    15. Müller, Kai-Uwe, 2012. "Estimating the employment effects of a minimum wage from a cross-sectional wage distribution. A semi-parametric approach," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62019, Verein für Socialpolitik / German Economic Association.
    16. Michele Battisti & Gabriel Felbermayr, 2015. "Migrants in the German Labour Market: Wages, Unemployment, Employment Rates," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(20), pages 39-47, October.
    17. Paulina Broniatowska & Aleksandra Majchrowska & Zbigniew ¯ó³kiewski, 2015. "Does minimum wage reduce youth employment on regional labour markets in Poland?," Lodz Economics Working Papers 1/2015, University of Lodz, Faculty of Economics and Sociology.
    18. Gürtzgen, Nicole & Blömer, Maximilian & Pohlan, Laura & Stichnoth, Holger & van den Berg, Gerard, 2016. "Estimating an Equilibrium Job Search Model for the German Labour Market," VfS Annual Conference 2016 (Augsburg): Demographic Change 145950, Verein für Socialpolitik / German Economic Association.
    19. Müller, Kai-Uwe & Steiner, Viktor, 2013. "Distributional effects of a minimum wage in a welfare state: The case of Germany," Discussion Papers 2013/21, Free University Berlin, School of Business & Economics.
    20. Bredemeier, Christian & Juessen, Falko, 2012. "Minimum Wages and Female Labor Supply in Germany," IZA Discussion Papers 6892, Institute of Labor Economics (IZA).
    21. Gebhard Kirchgässner, 2009. "Critical Analysis of Some Well-Intended Proposals to Fight Unemployment," University of St. Gallen Department of Economics working paper series 2009 2009-17, Department of Economics, University of St. Gallen.
    22. Schmid, Ramona, 2022. "Mind the gap: Effects of the national minimum wage on the gender wage gap in Germany," Hohenheim Discussion Papers in Business, Economics and Social Sciences 06-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    23. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection Discussion Papers and Notes 51698, The World Bank.
    24. Blömer, Maximilian J. & Guertzgen, Nicole & Pohlan, Laura & Stichnoth, Holger & van den Berg, Gerard J., 2018. "Unemployment effects of the German minimum wage in an equilibrium job search model," ZEW Discussion Papers 18-032, ZEW - Leibniz Centre for European Economic Research.
    25. Müller, Kai-Uwe & Steiner, Viktor, 2011. "Beschäftigungswirkungen von Lohnsubventionen und Mindestlöhnen - Zur Reform des Niedriglohnsektors in Deutschland," Discussion Papers 2011/4, Free University Berlin, School of Business & Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wages and their Alternatives: A Critical Assessment," CESifo Working Paper Series 2494, CESifo.
    2. Giovanni Immordino & Francesco Flaviano Russo, 2014. "Taxing Cash to Fight Collaborative Tax Evasion?," CSEF Working Papers 351, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Dirk Antonczyk & Thomas DeLeire & Bernd Fitzenberger, 2018. "Polarization and Rising Wage Inequality: Comparing the U.S. and Germany," Econometrics, MDPI, vol. 6(2), pages 1-33, April.
    4. Ekaterina Selezneva & Philippe Van Kerm, 2016. "A distribution-sensitive examination of the gender wage gap in Germany," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(1), pages 21-40, March.
    5. Berthold, Norbert & Zenzen, Jupp, 2009. "Stochern im Nebel: der Ungleichheit auf der Spur," Discussion Paper Series 104, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    6. Baumgarten, Daniel & Geishecker, Ingo & Görg, Holger, 2013. "Offshoring, tasks, and the skill-wage pattern," European Economic Review, Elsevier, vol. 61(C), pages 132-152.
    7. Beissinger, Thomas & Chusseau, Nathalie & Hellier, Joël, 2015. "Offshoring and Labour Market Reforms: Modelling the German Experience," IZA Discussion Papers 8920, Institute of Labor Economics (IZA).
    8. Aretz, Bodo, 2013. "Gender Differences in German Wage Mobility," IZA Discussion Papers 7158, Institute of Labor Economics (IZA).
    9. Weigert, Benjamin & Klemm, Marcus, 2015. "Composition matters! Wage inequality and the demographic and educational structure of the labor force in Germany," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112914, Verein für Socialpolitik / German Economic Association.
    10. Kai Daniel Schmid & Ulrike Stein, 2013. "Explaining Rising Income Inequality in Germany, 1991-2010," IMK Studies 32-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. Bernd Fitzenberger & Arnim Seidlitz, 2020. "Die Lohnungleichheit von Vollzeitbeschäftigten in Deutschland: Rückblick und Überblick [Wage inequality among the full-time employed in Germany revisited: An overview]," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 14(2), pages 125-143, July.
    12. Rukwid, Ralf, 2007. "Arbeitslosigkeit und Lohnspreizung - Empirische Befunde zur Arbeitsmarktsituation gering Qualifizierter in Deutschland," Violette Reihe: Schriftenreihe des Promotionsschwerpunkts "Globalisierung und Beschäftigung" 24/2007, University of Hohenheim, Carl von Ossietzky University Oldenburg, Evangelisches Studienwerk.
    13. Johannes Gernandt & Friedhelm Pfeiffer, 2008. "Wage Convergence and Inequality after Unification: (East) Germany in Transition," SOEPpapers on Multidisciplinary Panel Data Research 107, DIW Berlin, The German Socio-Economic Panel (SOEP).
    14. Brück, Tilman & Peters, Heiko, 2009. "20 years of German unification: Evidence on income convergence and heterogeneity," Working Papers 03/2009, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    15. Gernandt, Johannes, 2009. "Decreasing wage mobility in Germany," ZEW Discussion Papers 09-044, ZEW - Leibniz Centre for European Economic Research.
    16. Schöb, Ronnie, 2007. "Soziale Grundsicherung und Beschäftigung," Discussion Papers 2007/12, Free University Berlin, School of Business & Economics.
    17. Rafal Kierzenkowski & Isabell Koske, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 8. The Drivers of Labour Income Inequality – A Literature Review," OECD Economics Department Working Papers 931, OECD Publishing.
    18. Bachmann, Ronald & Bauer, Thomas K. & Kröger, Hanna & Schaffner, Sandra & Schmidt, Christoph M., 2012. "Tarifvertragssystem stärken - Allgemeinverbindliche Tariflöhne und branchenspezifische Mindestlöhne erleichtern. Stellungnahme zur Anhörung des Ausschusses für Arbeit und Soziales des Deutschen Bundes," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 72615.
    19. Bognetti, Giuseppe & Santoni, Michele, 2016. "Increasing the substitution elasticity can improve VAT compliance and social welfare," Economic Modelling, Elsevier, vol. 58(C), pages 293-307.
    20. Usamah Fayez Al-Farhan, 2010. "A Detailed Decomposition of Changes in Wage Inequality in Reunified Post-transition Germany 1999-2006: Accounting for Sample Selection," SOEPpapers on Multidisciplinary Panel Data Research 269, DIW Berlin, The German Socio-Economic Panel (SOEP).

    More about this item

    Keywords

    minimum wage incidence; statutory minimum wage; welfare system; wage; subsidies;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2432. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.