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Fiscal Effects of Minimum Wages: An Analysis for Germany

  • Bauer, Thomas K.

    ()

    (RWI)

  • Kluve, Jochen

    ()

    (Humboldt University Berlin, RWI)

  • Schaffner, Sandra

    ()

    (RWI)

  • Schmidt, Christoph M.

    ()

    (RWI)

Against the background of the current discussion on the introduction 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 the introduction of minimum wages in Germany will be associated with significant employment losses that are concentrated 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 expenditures for unemployment benefits and decreased revenues from corporate taxes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3875.

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Length: 30 pages
Date of creation: Dec 2008
Date of revision:
Publication status: published in: German Economic Review, 2009, 10(2), 224-242
Handle: RePEc:iza:izadps:dp3875
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  1. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
  2. Kirsten Labuske & Jochen Streb, 2008. "Technological Creativity and Cheap Labour? Explaining the Growing International Competitiveness of German Mechanical Engineering before World War I," German Economic Review, Verein für Socialpolitik, vol. 9, pages 65-86, 02.
  3. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
  4. Lietmeyer, Volker & Petzold, Oliver, 2005. "Bedingungen und Ziele für eine Reform der Unternehmensbesteuerung," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 85(9), pages 590-599.
  5. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  6. Fitzenberger, Bernd & Franz, Wolfgang, 2000. "Jobs. Jobs? Jobs! Orientierungshilfen für den Weg zu mehr Beschäftigung," ZEW Discussion Papers 00-49, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. 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).
  8. Ronald Backmann & Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2008. "Mindestlöhne in Deutschland - Beschäftigungswirkungen und fiskalische Effekte," RWI Materialien, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 56, 05.
  9. Justus Haucap & Uwe Pauly & Christian Wey, 2007. "A Cartel Analysis of the German Labor Institutions and its Implications for Labor Market Reforms," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(3), pages 503-516, September.
  10. Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-71, November.
  11. Lena Jacobi & Sandra Schaffner, 2008. "Does Marginal Employment Substitute Regular Employment? – A Heterogeneous Dynamic Labor Demand Approach for Germany," Ruhr Economic Papers 0056, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  12. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  13. 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.
  14. 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.
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