Fiscal Effects of Minimum Wages: An Analysis for Germany

Thomas K. Bauer 1 , 2 , 3 , Sandra Schaffner 4 , Jochen Kluve 1 , 3 ,  and Christoph M. Schmidt 1 , 2 , 3 , 5
  • 1 RWI,, Essen, Germany
  • 2 Ruhr-Universität,, Bochum, Germany
  • 3 IZA,, Bonn, Germany
  • 4 RWI,, Essen, Germany
  • 5 CEPR,, London, United Kingdom of Great Britain and Northern Ireland

Abstract

Against the background of the current discussion 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 minimum wages in Germany will be associated with significant employment losses 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 unemployment benefits and decreased revenues from corporate taxes.

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German Economic Review (GER), the official publication of the German Economic Association (Verein für Socialpolitik), is an international journal publishing original and rigorous research of general interest in a broad range of economic disciplines. The scope of research approaches includes theoretical, empirical and experimental work.

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