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Minimum Wages and Cost-Push Inflation: Economy-Wide Evidence from Germany

Author

Listed:
  • Sevrin Waights
  • Liliana Cuccu
  • Maximilian Priem

Abstract

We provide the first estimates of minimum wage effects on the aggregate price level using data on the near-full German consumer basket across four national reforms, 2015-2024. Drawing on a structural model of pricing under imperfect competition, we utilise minimum wage cost shocks rather than the commonly used firm-level ‘bite’ that we show to be biased under strategic complementarity. Labour cost pass-through is 83-94 percent, at the higher end of estimates for other cost shocks. The implied macro-price elasticity is 0.024. The largest increase in October 2022 to €12 raised the aggregate price level by 0.39 percent.

Suggested Citation

  • Sevrin Waights & Liliana Cuccu & Maximilian Priem, 2026. "Minimum Wages and Cost-Push Inflation: Economy-Wide Evidence from Germany," Berlin School of Economics Discussion Papers 0112, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0112
    DOI: 10.48462/opus4-6467
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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