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Fiscal Effects of Minimum Wages: An Analysis for Germany

Author

Listed:
  • Bauer Thomas K.

    (RWI,Essen, Germany)

  • Schaffner Sandra

    (RWI,Essen, Germany)

  • Kluve Jochen

    (RWI,Essen, Germany)

  • Schmidt Christoph M.

    (RWI,Essen, Germany)

Abstract

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.

Suggested Citation

  • Bauer Thomas K. & Schaffner Sandra & Kluve Jochen & Schmidt Christoph M., 2009. "Fiscal Effects of Minimum Wages: An Analysis for Germany," German Economic Review, De Gruyter, vol. 10(2), pages 224-242, May.
    • Handle: RePEc:bpj:germec:v:10:y:2009:i:2:p:224-242
    DOI: 10.1111/j.1468-0475.2009.00467.x
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    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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