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Minimum Wage Incidence: The Case for Germany

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  • 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 Group Munich.
  • Handle: RePEc:ces:ceswps:_2432
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    Cited by:

    1. Müller, Kai-Uwe, 2012. "Estimating the employment effects of a minimum wage from a cross-sectional wage distribution. A semi-parametric approach," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62019, Verein für Socialpolitik / German Economic Association.
    2. Michele Battisti & Gabriel Felbermayr, 2015. "Migranten im deutschen Arbeitsmarkt: Löhne, Arbeitslosigkeit, Erwerbsquoten," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(20), pages 39-47, October.
    3. 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.
    4. 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.
    5. Adolf STROOMBERGEN & Peter HALL, "undated". "General Equilibrium Analysis of Bio-Energy Options," EcoMod2010 259600160, EcoMod.
    6. Knabe Andreas & Schöb Ronnie & Thum Marcel, 2014. "Der flächendeckende Mindestlohn," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(2), pages 133-157, June.
    7. Bredemeier, Christian & Juessen, Falko, 2012. "Minimum Wages and Female Labor Supply in Germany," IZA Discussion Papers 6892, Institute for the Study of Labor (IZA).
    8. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection and Labor Policy and Technical Notes 51698, The World Bank.
    9. Müller, Kai-Uwe & Steiner, Viktor, 2010. "Labor Market and Income Effects of a Legal Minimum Wage in Germany," IZA Discussion Papers 4929, Institute for the Study of Labor (IZA).
    10. George Economides & Thomas Moutos, 2014. "Minimum Wages as a Redistributive Device in the Long Run," CESifo Working Paper Series 5052, CESifo Group Munich.
    11. 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.
    12. 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.
    13. 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.

    More about this item

    Keywords

    minimum wage incidence; statutory minimum wage; welfare system; wage subsidies;

    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

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