Minimum Wage Incidence: The Case for Germany

Andreas Knabe and Ronnie Schöb
Authors registered in the RePEc Author Service: Ronnie Schoeb

No 2432, CESifo Working Paper Series from CESifo

Abstract: 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 about EUR 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 subsidies that 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.

Keywords: minimum wage incidence; statutory minimum wage; welfare system; wage; subsidies (search for similar items in EconPapers)
JEL-codes: H20 I30 J30 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Minimum Wage Incidence: The Case for Germany (2009)
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