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Fiscal Effects of Minimum Wages: An Analysis for Germany

  • Thomas K. Bauer
  • Jochen Kluve
  • Sandra Schaffner
  • Christoph M. Schmidt

Against the background of the current discussion 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 minimum wages in Germany will be associated with significant employment losses 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 unemployment benefits and decreased revenues from corporate taxes. Copyright 2009 The Authors. Journal Compilation 2009 Verein für Socialpolitik and Blackwell Publishing Ltd. 2009.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 10 (2009)
Issue (Month): (05)
Pages: 224-242

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Handle: RePEc:bla:germec:v:10:y:2009:i::p:224-242
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  1. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
  2. Joachim Ragnitz & Marcel Thum, 2007. "Zur Einführung von Mindestlöhnen: empirische Relevanz des Niedriglohnsektors," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 14(03), pages 36-39, 06.
  3. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
  4. Bauer, Thomas K. & Kluve, Jochen & Schaffner, Sandra & Schmidt, Christoph M., 2008. "Fiscal Effects of Minimum Wages: An Analysis for Germany," IZA Discussion Papers 3875, Institute for the Study of Labor (IZA).
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  15. Justus Haucap & Christian Wey, 2008. "Erosion des Flächentarifsystems macht eine Wettbewerbsaufsicht auf dem Arbeitsmarkt notwendig," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 75(6), pages 61-65.
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