Introducing minimum wages in Germany employment effects in a post Keynesian perspective

Abstract

There has been a long discussion about the employment impact of minimum wages and this discussion has recently been renewed with the introduction of an economy-wide, binding minimum wage in Germany in 2015. In traditional reasoning, based on the allocational approach of modern labour market economics, it has been suggested that the impact is clearly negative on the assumption of a competitive labour market and clearly positive on the assumption of a monopsonistic labour market. Unfortunately, both predictions conflict with the empirical findings, which do not show a clear-cut impact of significant size in any direction. As an alternative, a Post Keynesian twosector model including an employment market is presented here. Its most likely prediction of a negligible employment effect and a sectoral shift is tested against the German case of an introduction of a statutory minimum wage in 2015. Despite substantial wage increases in the low wage sector, our empirical analysis reveals very low overall employment loss of about 33,000 labourers as a result of a small sectoral shift from low wage industries to higher wage industries.

Monopsony power and the demand for low-skilled workers

“…Most studies find little or no evidence for an overall reduction of employment (eg. Bonin et al 2019; Bossler and Gerner, 2020; Bruttel, 2019; Caliendo et al 2018; Garloff, 2019; Heise and Pusch, 2020; Herr et al 2017; Herzog-Stein et al 2020). Among these, Bossler and Gerner (2020) is the only study that explicitly estimates labour demand elasticities using the German minimum wage as an instrument.…”

Comparing economic theories or: pluralism in economics and the need for a comparative approach to scientific research programmes

“…These effects may be smaller if we assume a labour market with imperfections (transaction cost and imperfect competition) rather than a 'perfect' labour market, yet the allocational distortion is unavoidable (see Braun et al 2020). Choosing, alternatively, a post-Keynesian paradigm based on nominal obligations and taking a macroeconomic perspective to determine the employment effect of minimum wages, the prediction based on a simple Z-D theory without any particular assumptions about 'employment market ' [19] frictions would be quite different: there is a high likelihood of minimum wages having not employment but rather price effects (see Heise and Pusch 2019). When it comes to empirical testing -and the real-world experiment of introducing a binding statutory minimum wage in Germany in 2015 fully replicates these findings -a vast number of studies using a variety of methods suggest no discernible employment effect (see e.g.…”