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

Abstract

This 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.

Labor Demand on a Tight Leash

“…Hence, variation from the minimum wage introduction is part of the variation leading to our elasticity estimates. In line with our Bartik-style identification strategy, the minimum wage caused an effective wage shift that strongly differed by occupation (Friedrich, 2020).…”

Who Pays for the Minimum Wage?

“…5 This announcement was rather unexpected, since the radical increase of the minimum wage had not previously been part of the political discourse. 6 For instance, the unions were demanding a 13 percent increase in minimum wage at the pre-negotiations, so a government proposal to double the nominal minimum wage in two years was above all expectations (Tóth 2001). In fact both unions and employers strongly opposed such a radical change to the minimum wage as they were afraid of the negative consequences for jobs.…”

“…For part-timers, accounting for only 5 percent of all employees in Hungary, the minimum is proportionally lower 5. The exchange rate was 280 HUF/US$ on January 1, 2001, so the monthly base earnings was increased from $91 to $179 6. In the previous general election in 1998, none of the major political parties campaigned for increasing the minimum wage.…”