The Impact of The New German Minimum Wage

DEAD7

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January 17, 2019 3:00PM
The Impact of The New German Minimum Wage
By Ryan Bourne


Germany introduced a new economy-wide minimum wage for the first time in 2015, at a relatively high rate of €8.50 ($9.67 today). This rose to €8.84 in 2017. For reference: between 10 and 14 percent of eligible workers were thought to earn less than €8.50 before the policy was introduced.

This is interesting from a research perspective. Most minimum wage studies examine the impact of minimum wages at low levels or assess small changes to their rate. But here we have a case study of a whole regime change with a high rate introduced for the first time.

A new paper by IZA Institute of Labor Economics provides a clear literature review on the effects so far. Studies have exploited three different strategies to assess the impact: utilizing regional variation of the “bite” of the minimum wage, using treatment and control groups, and assessing the impact on firms. As the table below shows, a broad consensus is emerging, which sits well within the existing minimum wage literature:

  • Unsurprisingly, hourly wages have increased at the bottom of the income distribution, though there is little evidence of a ripple effect further up.
  • Most studies find a small but negative effect on overall employment (up to 260,000 fewer jobs), driven by reduced hiring (not layoffs) and a reduction of casual and atypical employment.
  • All studies that assessed it find a negative effect on contractual hours.
  • As a result, although hourly wages increased, the reduction in hours meant gross monthly earnings does not appear to have increased much for low-paid employees.
  • Since gross monthly earnings have not substantially increased, and those earning minimum wage are often not from the poorest households, the policy hasn’t seemingly reduced the risk of being in poverty.
german_minimum_wage.png
 
storyteller

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DEAD7 said:
:mindblown:They built the strongest economy in the EU with no min wage, what are they thinking????
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It'd help if you posted an article that actually pertained to the factors that allow some European nations to have strong economies without minimum wages (not sure about Germany but usually I see no minimum wage tied to stronger union representation that reduces/eliminates the need as a worthwhile explanation and variable to look into).

But the article you looked at seems to be exploring impacts of implementing minimum wage. I'd look closer to home for results though, this is one I remembered seeing and figure is a good place to pull some numbers from...

New Study: High Minimum Wages in Six Cities, Big Impact on Pay, No Employment Losses

The report, “The New Wave of Local Minimum Wage Policies: Evidence from Six Cities,” from the Center on Wage and Employment Dynamics (CWED) at UC Berkeley analyzes the effects of minimum wage policies in the six large U.S. cities that were first to raise the minimum wage higher than $10. The study is the first comprehensive look at the effects of these new policies.

The team of economists find significant pay increases and no significant employment reductions in the six cities.

The Fight for $15 campaigns that began in 2012 set a new wave of state and local minimum wage policies in motion. Today, ten large cities (Chicago, Los Angeles, Minneapolis, New York City, Oakland, Portland, San Francisco, San Jose, Seattle and Washington, DC), seven states (Arizona, California, Colorado, Massachusetts, New York, Oregon and Washington) and dozens of smaller cities and counties are phasing in minimum wages in the $12 to $15 range. Similar policies are being considered in other cities and states across the country.

“We wanted to know if these higher minimum wages had their intended effect of increasing pay for low-wage workers and also if there was any effect on employment,” said Sylvia Allegretto, co-chair of CWED and a co-author of the report.

The researchers look at the food services industry, a major employer of low-wage workers, in Chicago, the District of Columbia, Oakland, San Francisco, San Jose, and Seattle. To distinguish the effects of the policies from other economic changes, the authors use state-of-the-art statistical methods and compare U.S. Bureau of Labor Statistics data on these cities with 173 metro counties across the U.S. that did not experience a minimum wage change.

By the end of 2016 (the final year in the researchers’ analysis), minimum wages in the six cities had increased to $10.30 in San Jose, $10.50 in Chicago, $11.50 in the District of Columbia, $12.55 in Oakland and $13 in San Francisco and Seattle. These minimum wages were slated to continue to rise—to $13 in Chicago and to $15 in the other five cities.

“The new policies will eventually increase pay for up to 30 percent of the workforce in these cities,” according to Michael Reich, co-chair of CWED and co-author of the report.

The new report casts further doubt on a 2017 University of Washington study that had found large negative employment effects when Seattle’s minimum wage increased to $13. Critics argued that the UW study was not able to take into account the effects of a job boom in Seattle that did not occur in the rest of Washington State.

The minimum wages analyzed in the report reached much higher levels than any previous policies. The federal minimum wage remains $7.25, unchanged since 2009.

“When these minimum wage policies were being considered, some predicted that they would lead to significant job losses. We did not find such job losses. We did find that these cities’ minimum wage policies increased the earnings of low-wage workers, just as intended,” said Carl Nadler, co-author of the report.
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From that same article,

Additionally, the level of non-compliance was substantial in the short run, thus drawing attention to problems when implementing such a wide reaching policy.
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Even with the new minimum wage laws, people are still being underpaid. Plus, there are loopholes in the law as well, in terms of who qualifies for the higher minimum wage.
 
acri1

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Rarely-Wrong Liggins said:
This could all be true but you have absolutely no credibility so I'm going to assume this is a right leaning article with cherry picked facts.
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Literally all he ever posts are CATO institute articles. Which is a mouthpiece for the Koch brothers.

So I'll just say it again, get the Koch brothers out your mouth and think for yourself for once. :francis:
 
the cac mamba

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PoorAndDangerous said:
It's amazing how the 1% can convince everyone else minimum wage is bad
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it should just be a law that it goes up a certain percent every year to keep up with inflation, at LEAST

but tbh, i think that states and cities solve the min wage debate :yeshrug: it's not like a national min wage makes sense. it doesnt
 
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