Employment Effects of the New German Minimum Wage: Evidence from Establishment-Level Microdata

Abstract

The authors present the first evidence on the consequences of the new statutory minimum wage in Germany, which was implemented on January 1, 2015. Using the IAB Establishment Panel, they identify employment effects from variation in the extent that establishments are affected by the minimum wage. A difference-in-differences estimation reveals an increase in average wages between 3.8% and 6.3% and an employment loss by approximately 1.7% in establishments affected by the minimum wage. These estimates imply a labor demand elasticity with respect to wages ranging between −0.2 and −0.4. The authors also observe a transitory reduction of the working hours in the first year after the introduction and that the employment effect seems mostly driven by a reduction in hires rather than by an increase in layoffs.

Employment expectations and uncertainties ahead of the new German minimum wage

“…Small discrepancies with the estimates presented inBossler and Gerner (2016), whose estimated employment effect is slightly larger, can be ascribed to the dependent variable which is a growth rate rather than the level of employment.…”

Do minimum wages increase job satisfaction? Micro‐data evidence from the new German minimum wage

“…Our results suggest a ceteris paribus increase in the affected workers' utility measured by a significant increase in the pay satisfaction. However, this effect should be contrasted with potential losses in utility due to moderate minimum wage-induced job losses that are neglected in our analyses but are prevalent in Bossler and Gerner (2016) or vom Berge et al (2016). By contrast, the nonexistence of effects on work engagement and turnover intention indicates that the minimum wage is not accompanied by a rise in productivity through an increased work engagement or a reduction of replacement costs due to the workers' turnover intention.…”

“…In Europe, the literature is much concentrated on the minimum wage in the UK, whereby most studies detect only small negative employment effects (Dolton et al, 2015;Machin et al, 2003). In line with these findings in the UK, a recent evaluation of the new German minimum wage by Bossler and Gerner (2016) detects a modest job loss which is mostly driven by a reduction in hires.…”

“…In the last decade, the literature on employment adjustments moved toward explaining labor turnover and firm-level outcomes such as product prices and profitability. Studies for Canada (Brochu and Green, 2013), Portugal (Portugal and Cardoso, 2006), the United States (Dube et al, 2016;Gittings and Schmutte, 2016), and also Germany Bossler and Gerner (2016) find a significant reduction in turnover induced by the minimum wage. Based on accounting information on profits and the firms' stock market valuation, Draca et al (2011) as well as Bell and Machin (2016) show evidence for a profitability reducing effect of minimum wages in the UK, which is mostly explained trough an increase in labor costs.…”

Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional

“…Garloff (2016) further documents that employment requiring the payment of social security contributions increased strongest in regions where the number of mini jobs decreased the most. Bossler and Gerner (2016), on the other hand, find mild disemployment effects. However, all this evidence investigates the introduction of minimum wage in Germany during an economic boom.…”