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Fiscal Effects of Minimum Wages – An Analysis for Germany

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Author Info
Thomas K. Bauer ()
Jochen Kluve
Sandra Schaffner
Christoph M. Schmidt

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Abstract

Against the background of the current discussion on the introduction of statutory minimum wages in Germany, this paper analyzes the potential employment and fiscal effects of such a policy. Based on estimated labor demand elasticities obtained from a structural labor demand model, the empirical results imply that the introduction of minimum wages in Germany will be associated with significant employment losses that are concentrated among marginal and low- and semi-skilled full-time workers. Even though minimum wages will lead to increased public revenues from income taxes and social security benefits, they will result in a significant fiscal burden, due to increased expenditures for unemployment benefits and decreased revenues from corporate taxes.

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Publisher Info
Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0079.

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Length: 32 pages
Date of creation: Nov 2008
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Handle: RePEc:rwi:repape:0079

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Related research
Keywords: Minimum wages; employment; public budget; fiscal effects;

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Find related papers by JEL classification:
H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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  1. Justus Haucap & Uwe Pauly & Christian Wey, 2007. "A Cartel Analysis of the German Labor Institutions and its Implications for Labor Market Reforms," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(3), pages 503-516, September. [Downloadable!] (restricted)
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  2. Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-71, November. [Downloadable!] (restricted)
  3. Justus Haucap & Christian Wey, 2008. "Erosion des Flächentarifsystems macht eine Wettbewerbsaufsicht auf dem Arbeitsmarkt notwendig," Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 75(6), pages 61-65. [Downloadable!]
  4. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September. [Downloadable!] (restricted)
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  5. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September. [Downloadable!] (restricted)
  6. Marcel Thum & Joachim Ragnitz, 2007. "Zur Einführung von Mindestlöhnen: Empirische Relevanz des Niedriglohnsektors," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(10), pages 33-35, 09. [Downloadable!]
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