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Minimum Wage Incidence: The Case for Germany

  • Andreas Knabe
  • Ronnie Schöb

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 aboutEUR 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 subsidiesthat 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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-10/cesifo1_wp2432.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2432.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2432
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  1. Gernandt, Johannes & Pfeiffer, Friedhelm, 2006. "Rising Wage Inequality in Germany," ZEW Discussion Papers 06-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  3. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
  4. Guy Laroque & Bernard Salanie, 2002. "Labour market institutions and employment in France," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 25-48.
  5. Neumark, David & Wascher, William L., 2007. "Minimum Wages and Employment," Foundations and Trends(R) in Microeconomics, now publishers, vol. 3(1–2), pages 1-182, March.
  6. Gerhard D. Kleinhenz & Stefan Bauernschuster, 2008. "Staatlicher Mindestlohn – Musterfall eines Mangels an Aufklärung über die Ökonomik sozialer Politik," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(06), pages 45-49, 03.
  7. Wolfgang Franz, 2007. "Ein zielgerichtetes Kombilohnmodell: Der Vorschlag des Sachverständigenrats," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(04), pages 24-28, 02.
  8. Hamermesh, Daniel S, 1980. "Factor Market Dynamics and the Incidence of Taxes and Subsidies," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 751-64, December.
  9. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," CESifo Working Paper Series 1707, CESifo Group Munich.
  10. Eswar Prasad, 2000. "The Unbearable Stability of the German Wage Structure; Evidence and Interpretation," IMF Working Papers 00/22, International Monetary Fund.
  11. Alan S. Blinder, 1988. "The Challenge of High Unemployment," NBER Working Papers 2489, National Bureau of Economic Research, Inc.
  12. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  13. Joachim Ragnitz & Marcel Thum, 2007. "The empirical relevance of minimum wages for the low-wage sector," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 8(2), pages 35-37, 07.
  14. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2006. "Aktivierende Sozialhilfe 2006 - das Kombilohn-Modell des ifo Instituts," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 59(02), pages 06-27, 01.
  15. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2007. "Die zentralen Elemente der Aktivierenden Sozialhilfe," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(04), pages 48-53, 02.
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