Fiscal Effects of Minimum Wages - An Analysis for Germany

32 Pages Posted: 17 Dec 2008

See all articles by Thomas K. Bauer

Thomas K. Bauer

Rhine-Westphalia Institute for Economic Research (RWI-Essen); University of Bochum - Faculty of Economics; IZA Institute of Labor Economics

Jochen Kluve

Humboldt University of Berlin; RWI; IZA

Sandra Schaffner

RWI - Leibniz Institute for Economic Research

Christoph M. Schmidt

RWI - Leibniz-Insitut für Wirtschaftsforschung (RWI Essen); Ruhr-Universität Bochum (RUB); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)

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Date Written: November 1, 2008

Abstract

Against the background of the current discussion on the introduction 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 the introduction of minimum wages in Germany will be associated with significant employment losses that are concentrated 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 expenditures for unemployment benefits and decreased revenues from corporate taxes.

Keywords: Minimum wages, employment, public budget, fiscal effects

JEL Classification: H60, J31, J88

Suggested Citation

Bauer, Thomas K. and Kluve, Jochen and Schaffner, Sandra and Schmidt, Christoph M., Fiscal Effects of Minimum Wages - An Analysis for Germany (November 1, 2008). Ruhr Economic Paper No. 79. Available at SSRN: https://ssrn.com/abstract=1316814 or http://dx.doi.org/10.2139/ssrn.1316814

Thomas K. Bauer (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

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IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Germany
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Jochen Kluve

Humboldt University of Berlin ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

RWI ( email )

Essen
Germany

IZA

P.O. Box 7240
Bonn, D-53072
Germany

Sandra Schaffner

RWI - Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany

HOME PAGE: http://www.rwi-essen.de/schaffner

Christoph M. Schmidt

RWI - Leibniz-Insitut für Wirtschaftsforschung (RWI Essen) ( email )

Hohenzollernstraße 1-3
Essen, 45128
Germany
++49 201 8149-227 (Phone)
++49 201 8149-236 (Fax)

Ruhr-Universität Bochum (RUB)

GC 2/150
Universitätsstr. 150
D-44780 Bochum
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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