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Fiscal Effects of Minimum Wages: An Analysis for Germany

Author

Listed:
  • Bauer, Thomas K.

    (RWI)

  • Kluve, Jochen

    (KfW Development Bank)

  • Schaffner, Sandra

    (RWI)

  • Schmidt, Christoph M.

    (RWI)

Abstract

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.

Suggested Citation

  • 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 of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3875
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    More about this item

    Keywords

    fiscal effects; minimum wages; employment; public budget;
    All these keywords.

    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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