The positive economic impact of Germany’s statutory minimum wage – an econometric analysis

Alexander Herzog-Stein, Camille Logeay, Patrick Nüß, Ulrike Stein and Rudolf Zwiener
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Rudolf Zwiener: Macroeconomic Policy Institute (IMK)

No 141e-2018, IMK Report from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: With the empirical analyses of the macroeconomic effects of the introduction of the statutory minimum wage in Germany, the IMK tries to determine the short-term and expected medium- to long-term growth, price and employment effects with the help of a macro-econometric model. As a result, economic growth tended to be stimulated by the introduction of the minimum wage. This was mainly due to the higher wages of the minimum wage beneficiaries and a spillover effect on adjoining wage groups. In particular, this benefited people whose low savings rate led to a particularly strong increase in real private consumption. The price increases triggered were negligible on a macroeconomic scale. At the same time, there was a significant structural effect away from mini-jobs towards additional employment subject to social security contributions, while the volume of work hardly changed in hours. A short-term VAR analysis identifies a significant positive wage effect for 2015, positive (but not significant) overall economic price effects as expected and a clearly positive but not significant effect on employment. The introduction of the statutory minimum wage has helped Germany to embark on a more stable growth course based not only on export success but also on stable growth in domestic demand thanks to better wage development.

Pages: 19 pages
Date: 2018
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