German Minimum Wage Research Articles

Minimum wage non-compliance: the role of co-determination

AbstractWe analyse how co-determination is related to non-compliance with the German minimum wage, which was introduced in 2015. The Works Constitution Act (WCA), the law regulating co-determination at the plant level, provides works councils with indirect means to ensure compliance with the statutory minimum wage. Based on this legal situation, our theoretical model predicts that non-compliance is less likely in co-determined firms because works councils enhance the enforcement of the law. The economic correlates of co-determination, such as higher productivity and wages, affect non-compliance in opposite directions. The empirical analysis, using data from the German Socio-economic Panel (SOEP) for the years 2016 and 2019, demonstrates that non-compliance occurs less often for employees in co-determined establishments, while there is no correlation between non-compliance and the difference between the minimum wage and the wage actually paid.

Effects of the German Minimum Wage on Earnings and Working Time Using Establishment Data

Abstract This study examines the short-term effects of the introduction of a statutory minimum wage in Germany on hourly wages, monthly wages and paid working hours. We exploit a novel panel dataset by linking the Structure of Earnings Survey (SES) 2014 and the Earnings Survey (ES) 2015 and apply a difference-in-differences approach at the establishment level. The results indicate an effect of the introduction of the statutory minimum wage on the average hourly wages of employees in minimum wage establishments of up to 5.9 %. Due to negative effects on average working time of approximately minus 3.1 %, the effects on monthly gross earnings are smaller but still amount to up to 2.7 % on average. The results further suggest that the minimum wage effects on earnings were greater among low-wage employees than on average, in eastern Germany than in western Germany, and among part-time employees and marginal employees than among full-time employees.

Effects of the German Minimum Wage on Wages and Household Income

Abstract This article examines the effects of the introduction of the statutory minimum wage on the distribution of individual income from wages, as well as gross and net means-weighted income of workers in Germany. For the first time, data from the Survey of Income and Consumption was used, in which incomes are recorded in great detail. Both descriptive findings and the results of Unconditional Quantile Regressions indicate that the incomes of workers in regions with a high level of minimum wage intervention experienced significant increases after the introduction of the minimum wage, ranging into the middle band of the income distribution. Accordingly, the minimum wage has positively influenced the incomes of a large number of employee households.

The Minimum Wage in Germany: Institutional Setting and a Systematic Review of Key Findings

Abstract The introduction of a statutory minimum wage in Germany in 2015 aimed at improving the welfare of low-wage workers but was also accompanied by concerns about distortions in Europe’s largest economy. This paper provides a comprehensive survey of results from the evaluation of the German minimum wage by compiling recent descriptive evidence and a systematic literature review on causal effects through 2022. On 1 October 2022, the minimum wage was raised legislatively by 15 percent to 12 euros per hour, which affected approximately 5.8 million employees and 23 percent of companies. The war in Ukraine and the coronavirus pandemic hit minimum wage workers and minimum wage firms harder than the rest of the economy. The minimum wage thus far had the strongest causal effects directly after its introduction. Hourly wages increased, while working hours decreased, resulting in mixed effects on monthly wages. Overall employment fell slightly, with a decline in marginal employment in particular. Companies’ wage costs increased, and as productivity did not change, profits declined.

The Devil is in the Details: Heterogeneous Effects of the German Minimum Wage on Working Hours and Minijobs

The Devil is in the Details: Heterogeneous Effects of the German Minimum Wage on Working Hours and Minijobs

What Does the German Minimum Wage Do? The Impact of the Introduction of the Statutory Minimum Wage on the Composition of Low- and Minimum-Wage Labour

Abstract In this article, we examine structural changes in minimum wage and low wage labor following the introduction and first increase of the German minimum wage. Changes in the impact that workers face earning gross hourly wages below the minimum-wage or low-wage thresholds are identified by comparing individual, company and sectoral characteristics based on the Structure of Earnings Surveys (SESs) 2014 and 2018. The SES is a mandatory survey of companies that provides information on wages and working hours for approximately 1 million jobs and nearly 70,000 companies across all industries. Using these rich data, we present the first systematic analysis of how structural changes in individual-, company-, and industry-level determinants affect minimum- and low-wage workers. Using descriptive analysis, we first summarize the changing pattern in jobs, companies, and industries after the introduction of minimum wage. Second, we use random intercept-only models to estimate the explanatory power at the individual, company, and industry levels in 2014 and 2018. Third, we perform logistic and linear regression estimations to assess the changing trends in having a minimum- or low-wage job and the distance between a worker’s actual earnings and the minimum- and low-wage thresholds. We conclude that the minimum wage had an elevator effect on minimum wage labor. However, compositional effects regarding the minimum-wage and low-wage workforce were evident in terms of individual and company factors. There was a selective redistribution of minimum wage employees into slightly higher wage ranges. Furthermore, convergence seems to have occurred predominantly among sectors, as their explanatory power for lower wages declined.

Wage Inequality in Germany after the Minimum Wage Introduction

We revisit the development of monthly wages in Germany between 2000 and 2017. While wage inequality strongly increased during the first years of this period, it recently returned to its initial level, raising the question what the role of the German minimum wage introduction for this reversal is. We identify effects of the minimum wage from difference-in-differences based on unconditional quantile regressions applied to German administrative employment data. The results show significant wage effects of varying magnitudes along the lower half of the wage distribution. Employment dynamics do not explain effects along the wage distribution, implying strong wage increases among the existing workforce. The increased individual labor income is not offset by decreasing social benefits. Overall, the introduction of the minimum wage can account for about half of the recent decrease in wage inequality.

12 Euro Mindestlohn: Millionen Beschäftigte bekommen mehr Geld

Abstract According to recent data from the WSI employee survey, the increase in the German minimum wage to 12 euros has led to significant salary increases, reaching over 100 euros on average for employees receiving social insurance. After its introduction in 2015, the German minimum wage has been criticised for having little effect on workers’ earnings due to wide-spread working hour reductions and minimum wage violations. However, the latter could not have been that large as gross earnings in the minimum wage sector increased by a good 18% in price-adjusted terms between 2013 and 2018.

The short- and medium-term distributional effects of the German minimum wage reform

This study quantifies the distributional effects of the minimum wage introduced in Germany in 2015. Using detailed Socio-Economic Panel survey data, we assess changes in the hourly wages, working hours, and monthly wages of employees who were entitled to be paid the minimum wage. We employ a difference-in-differences analysis, exploiting regional variation in the “bite” of the minimum wage. At the bottom of the hourly wage distribution, we document wage growth of 9% in the short term and 21% in the medium term. At the same time, we find a reduction in working hours, such that the increase in hourly wages does not lead to a subortionate increase in monthly wages. We conclude that working hours adjustments play an important role in the distributional effects of minimum wages.

Did the minimum wage reduce the gender wage gap in Germany?

In many countries, women are over-represented among low-wage employees, which is why a wage floor could benefit them particularly. Following this notion, we analyse the impact of the German minimum wage introduction in 2015 on the gender wage gap. Germany poses an interesting case study in this context, since it has a rather high gender wage gap and set the minimum wage at a relatively high level, affecting more than four million employees. Based on individual data from the Structure of Earnings Survey, containing information for over one million employees working in 60,000 firms, we use a difference-in-difference framework that exploits regional differences in the bite of the minimum wage. We find a significant negative effect of the minimum wage on the regional gender wage gap. Between 2014 and 2018, the gap at the 10th percentile of the wage distribution was reduced by 4.6 percentage points (or 32%) in regions that were strongly affected by the minimum wage compared to less affected regions. For the gap at the 25th percentile, the effect still amounted to −18%, while for the mean it was smaller (−11%) and not particularly robust. We thus find that the minimum wage can indeed reduce gender wage disparities. While the effect is highest for the low-paid, it also reaches up into higher parts of the wage distribution.

Was it worth it? The impact of the German minimum wage on union membership of employees

This contribution scrutinises how introducing a statutory minimum wage of EUR 8.50 per hour, in January 2015, impacted German employees’ decision with regard to union membership. Based on representative data from the Labour Market and Social Security panel, the study applies a logistic difference-in-differences propensity score matching approach on entries into and withdrawals from unions in the German Trade Union Confederation (Deutscher Gewerkschaftsbund, DGB). The results show no separate effect on withdrawals from or entries into unions after the minimum wage introduction for those employees who benefited financially from it, but a significant increase of entries overall. Thus, unions’ campaign for a minimum wage strengthened their position in total but did not reverse the segmentation of union membership patterns.

Employment Effects of the New German Minimum Wage: Evidence from Establishment-Level Microdata

The authors present the first evidence on the consequences of the new statutory minimum wage in Germany, which was implemented on January 1, 2015. Using the IAB Establishment Panel, they identify employment effects from variation in the extent that establishments are affected by the minimum wage. A difference-in-differences estimation reveals an increase in average wages between 3.8% and 6.3% and an employment loss by approximately 1.7% in establishments affected by the minimum wage. These estimates imply a labor demand elasticity with respect to wages ranging between −0.2 and −0.4. The authors also observe a transitory reduction of the working hours in the first year after the introduction and that the employment effect seems mostly driven by a reduction in hires rather than by an increase in layoffs.

Using Occupations to Evaluate the Employment Effects of the German Minimum Wage

AbstractThis paper evaluates the short to medium run employment effects of the 2015 introduction of a statutory minimum wage in Germany. The effect of the policy is recovered from variation in the bite of the minimum wage across occupations using a difference-in-differences estimator. The analysis reveals that the reform only had a small impact on employment and highlights the importance of regional effect heterogeneity. In East Germany, marginal employment decreased by about 18,000 jobs in the short run and 52,000 jobs in the medium run, respectively, due to the minimum wage. In West Germany, no negative employment effects are detectable, but regular employment increased temporarily because of the reform. The medium run estimates include the impact of the first marginal increase of the wage floor from €8.50 to €8.84 in 2017.

Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional

AbstractThis paper analyzes the introduction of the German minimum wage in 2015 in a structural model geared to quantitatively assess its long-run economic effects. We first employ a simple neoclassic model where wages equal their marginal product, then extend this model to two sector economy, and finally introduce search and matching frictions. Even though all model variants remain highly stylized, they yield quantitative insights on the importance of different mechanisms and channels through which minimum wages affect outcomes in the long run. In this framework, the minimum wage has a strong negative effect on employment. When sectors are differently affected by the minimum wage, sectoral relative price changes play an important quantitative role. Other labor market policies and institutions are important for the transmission of minimum wage policy on labor market market outcomes.

Did the German Minimum Wage Reform Influence (Un)employment Growth in 2015? Evidence from Regional Data

AbstractUsing the variation across space, age and sex and the variation across space and sectors, we analyse the relationship between the minimum wage and (un)employment growth in 2015. We use difference-in-differences specifications and instrument the bite of the minimum wage by the lagged bite. The results provide stable evidence that a higher minimum wage bite is related to a higher growth rate of regular employment. We also find stable evidence that a higher minimum wage bite is related to a lower growth rate of marginal employment. These results are consistent with a transformation of marginal to regular jobs. The relationship to total employment is slightly positive in our preferred specification but insignificant or negative in others. For unemployment, we find a positive relationship between the bite of the minimum wage and unemployment growth in our preferred specification but insignificant or negative results in others.

The German Minimum Wage and Wage Growth: Heterogeneous Treatment Effects Using Causal Forests

Previous research suggests that minimum wages induce heterogeneous treatment effects on wages across different groups of employees. This research usually defines groups \textit{ex ante}. We analyze to what extent effect heterogeneities can be discerned in a data-driven manner by adapting the generalized random forest implementation of Athey et al (2019) in a difference-in-differences setting. Such a data-driven methodology allows detecting the potentially spurious nature of heterogeneities found in subgroups chosen ex-ante. The 2015 introduction of a minimum wage in Germany is the institutional background, with data of the Socio-economic Panel serving as our empirical basis. Our analysis not only reveals considerable treatment heterogeneities, it also shows that previously documented effect heterogeneities can be explained by interactions of other covariates.

Does the German Minimum Wage Help Low Income Households?: Evidence from Observed Outcomes and the Simulation of Potential Effects

This study provides ex-post evidence on the redistributive impact of the minimum wage on disposable household incomes in Germany. Although the reduction of income inequality and poverty were emphasized as policy goals of the of minimum wage introduction, the distributional literature for Germany has focused on hourly wages and earnings or relied on ex-ante simulations. Since ‘natural’ control groups are not available due to a nationwide introduction, this paper accumulates descriptive evidence. Based on data from the German Socio-Economic Panel we analyze changes in wage and income inequality, poverty, and different mechanisms that affect transmission from individual gross wage-rates to disposable household incomes. The minimum wage is found to be an ineffective tool for income redistribution. Increases at the bottom of the wage distribution do not translate into increases in disposable incomes of poor households because individuals affected by the minimum wage do not live primarily in households at the bottom, but are spread across the income distribution. Thus, welfare dependence is only marginally reduced. Additional simulations show that neither full compliance, nor substantial increases of the level would make the minimum wage more effective in reducing inequality and poverty.

The German Statutory Minimum Wage and Its Effects on Regional Employment and Unemployment

AbstractThis paper studies the effects of the introduction of Germany’s statutory minimum wage in 2015 on employment and unemployment on the level of regional labor markets. Using variation in the regional exposure to the new wage floor, we employ a difference-in-differences approach that compares the evolution of employment and unemployment between regions with varying minimum wage bites. Overall, we find no statistically significant effect of the introduction of the German minimum wage on regular employment subject to social insurance, but a statistically significant negative effect on marginal employment. The reduction is not accompanied by a proportional increase in unemployment.

Fair Enough? Minimum Wage Effects on Fair Wages

Minimum wages aim to raise wages for low-wage workers, but how do they affect fair wage perceptions? Using Socio-Economic Panel (SOEP) data, we show that fair wages are basi- cally linearly related with paid wages prior to the German minimum wage introduction in 2015. After the introduction, this relationship prevails for wages equal or above the mini- mum wage, a result that we re-confirm in a complementary laboratory experiment. However, workers whose paid wages, because of non-compliance with the law, still fall below the min- imum wage, have increased fair wage expectations: Irrespectively of their post-reform wage, they perceive a wage of about 12 Euro as fair. As this level corresponds to the pre-reform ex- pected fair wage at a paid wage of 8.50 Euro, the post-reform relationship is kinked, with a flat segment below the minimum wage. Our results have two important implications. Effort provision and thus productivity are unlikely to be affected for employees in the wage seg- ment above the minimum wage. In the non-compliance-segment, however, rising fair wage perceptions widen the gap between fair and paid wages, implying decreased effort provision and productivity.

The German Minimum Wage: Effects on Productivity, Profitability, and Investments

AbstractIn this article, we analyze the effects of the introduction of the German minimum wage using difference-in-differences estimations applied to the IAB Establishment Panel. The treatment effects on the treated establishments show a significant increase in personnel costs. When we analyze the effects of the minimum wage on the net sales of intermediates, we observe a reduction, which is fully explained by the increase in wage costs induced by the minimum wage. The results do not point to effects on establishment-level productivity or capital investments. Looking at investments in human capital, we do not observe any effects on apprenticeship offers or the placement of apprentices. If anything, the results point at a slight reduction in the provision of further training.