Abstract:This study quantifies the distributional effects of the minimum wage introduced in Germany in 2015. Using detailed Socio-Economic Panel survey data, we assess changes in the hourly wages, working hours, and monthly wages of employees who were entitled to be paid the minimum wage. We employ a difference-in-differences analysis, exploiting regional variation in the “bite” of the minimum wage. At the bottom of the hourly wage distribution, we document wage growth of 9% in the short term and 21% in the medium term… Show more
“…We have limited evidence for a substitution from marginal to part-time employment which also confirms previous findings (Bonin et al, 2020; Bachmann et al, 2017; Garloff, 2019; Schmitz, 2019; vom Berge and Weber, 2017), albeit only significant for the rise in part-time work in 2016. Different from Burauel et al (2020a) and Caliendo et al (2017), we do not find decreases in working hours in our sample, neither overall nor differentially across deciles. 14 Adjustments at the extensive or intensive margin of employment induced by the minimum wage cannot explain the limited pass-through of wage increases to disposable outcomes limiting the impact of the minimum wage on income redistribution and poverty reduction.…”
Section: Empirical Findingscontrasting
confidence: 96%
“…The share of employees earning less than €8.50 decreases from roughly 10% to about 7% (see also Table A6 in the appendix). This finding is in line with other studies on the German minimum wage introduction which find substantial and persistent non-compliance even years after the reform (Burauel et al, 2020b; Caliendo et al, 2017; Fedorets et al, 2019). 6 Figure 1.Distributions of hourly wages, eligible employees, 2012–2016.Notes: Kernel densities of the hourly wages of eligible employees by year.…”
Section: Empirical Findingssupporting
confidence: 92%
“…The literature concurs that minimum wages mitigate inequalities at the bottom of the wage distribution, albeit to a varying extent (Autor et al, 2016; Dickens and Manning, 2004; DiNardo et al, 1996; Dolton et al, 2012; Lee, 1999; Neumark et al, 2004; Stewart, 2012a, 2012b; Teulings, 2003). Evaluations for Germany find that wage increases induced by the minimum wage at the bottom of the distribution (Ahlfeldt et al, 2018; Burauel et al, 2020b; Bossler and Gerner, 2020; Bossler and Schank, 2020; Bruttel et al, 2018; Caliendo et al, 2017, 2018) are limited because of widespread non-compliance (Burauel et al, 2020b; Bruttel, 2019; Bruckmeier and Bruttel, 2021; Fedorets et al, 2019). Overall evidence on wage spillovers is mixed (Autor et al, 2016; Dickens and Manning, 2004; Stewart, 2012b).…”
Section: Related Literaturementioning
confidence: 99%
“…The wage growth observed in the lower quantiles impacts overall inequality of gross hourly wages only insignificantly (Figure 2). As there was also wage growth in upper parts of the distribution, the decrease in the Atkinson inequality index remains small and insignificant (see also Bossler and Schank, 2020; Caliendo et al, 2017; Fedorets et al, 2020). Due to the limited effect of the minimum wage introduction on the wage-rate, the effects on income inequality and poverty are highly constrained and would severely limit the implications of this study.…”
Section: Empirical Findingsmentioning
confidence: 99%
“…Existing empirical literature on the distributional impact of minimum wages in Europe and, in particular in Germany, has either focused on earnings and hourly wages (Bossler and Schank, 2020; Caliendo et al, 2017), or has mainly been based on ex-ante simulation studies (Brenke and Müller, 2013; Müller and Steiner, 2013). Notable exceptions are studies by Logue and Callan (2016) on Ireland and by Marx et al (2013) who compare minimum wage workers in Europe and the US.…”
Minimum wages are increasingly discussed as an instrument against (in-work) poverty and income inequality in Europe. Just recently the German government opted for a substantial ad-hoc increase of the minimum-wage level to €12 per hour mentioning poverty prevention as an explicit goal. We use the introduction of the federal minimum wage in Germany in 2015 to study its redistributive impact on disposable household incomes. Based on the German Socio-Economic Panel we analyse changes in poverty and income inequality investigating different mechanisms of the transmission from individual gross wage-rates to disposable household incomes. We find that the minimum wage is an inadequate tool for income redistribution because it does not target poor households. Individuals affected by the minimum wage are not primarily in households at the bottom of the income distribution but are spread across it. Consequently, welfare dependence decreases only marginally. The withdrawal of transfers or employment effects cannot explain the limited effect on poverty. Complementary simulations show that neither full compliance nor a markedly higher level of €12 per hour can render the minimum wage more effective in reducing poverty.
“…We have limited evidence for a substitution from marginal to part-time employment which also confirms previous findings (Bonin et al, 2020; Bachmann et al, 2017; Garloff, 2019; Schmitz, 2019; vom Berge and Weber, 2017), albeit only significant for the rise in part-time work in 2016. Different from Burauel et al (2020a) and Caliendo et al (2017), we do not find decreases in working hours in our sample, neither overall nor differentially across deciles. 14 Adjustments at the extensive or intensive margin of employment induced by the minimum wage cannot explain the limited pass-through of wage increases to disposable outcomes limiting the impact of the minimum wage on income redistribution and poverty reduction.…”
Section: Empirical Findingscontrasting
confidence: 96%
“…The share of employees earning less than €8.50 decreases from roughly 10% to about 7% (see also Table A6 in the appendix). This finding is in line with other studies on the German minimum wage introduction which find substantial and persistent non-compliance even years after the reform (Burauel et al, 2020b; Caliendo et al, 2017; Fedorets et al, 2019). 6 Figure 1.Distributions of hourly wages, eligible employees, 2012–2016.Notes: Kernel densities of the hourly wages of eligible employees by year.…”
Section: Empirical Findingssupporting
confidence: 92%
“…The literature concurs that minimum wages mitigate inequalities at the bottom of the wage distribution, albeit to a varying extent (Autor et al, 2016; Dickens and Manning, 2004; DiNardo et al, 1996; Dolton et al, 2012; Lee, 1999; Neumark et al, 2004; Stewart, 2012a, 2012b; Teulings, 2003). Evaluations for Germany find that wage increases induced by the minimum wage at the bottom of the distribution (Ahlfeldt et al, 2018; Burauel et al, 2020b; Bossler and Gerner, 2020; Bossler and Schank, 2020; Bruttel et al, 2018; Caliendo et al, 2017, 2018) are limited because of widespread non-compliance (Burauel et al, 2020b; Bruttel, 2019; Bruckmeier and Bruttel, 2021; Fedorets et al, 2019). Overall evidence on wage spillovers is mixed (Autor et al, 2016; Dickens and Manning, 2004; Stewart, 2012b).…”
Section: Related Literaturementioning
confidence: 99%
“…The wage growth observed in the lower quantiles impacts overall inequality of gross hourly wages only insignificantly (Figure 2). As there was also wage growth in upper parts of the distribution, the decrease in the Atkinson inequality index remains small and insignificant (see also Bossler and Schank, 2020; Caliendo et al, 2017; Fedorets et al, 2020). Due to the limited effect of the minimum wage introduction on the wage-rate, the effects on income inequality and poverty are highly constrained and would severely limit the implications of this study.…”
Section: Empirical Findingsmentioning
confidence: 99%
“…Existing empirical literature on the distributional impact of minimum wages in Europe and, in particular in Germany, has either focused on earnings and hourly wages (Bossler and Schank, 2020; Caliendo et al, 2017), or has mainly been based on ex-ante simulation studies (Brenke and Müller, 2013; Müller and Steiner, 2013). Notable exceptions are studies by Logue and Callan (2016) on Ireland and by Marx et al (2013) who compare minimum wage workers in Europe and the US.…”
Minimum wages are increasingly discussed as an instrument against (in-work) poverty and income inequality in Europe. Just recently the German government opted for a substantial ad-hoc increase of the minimum-wage level to €12 per hour mentioning poverty prevention as an explicit goal. We use the introduction of the federal minimum wage in Germany in 2015 to study its redistributive impact on disposable household incomes. Based on the German Socio-Economic Panel we analyse changes in poverty and income inequality investigating different mechanisms of the transmission from individual gross wage-rates to disposable household incomes. We find that the minimum wage is an inadequate tool for income redistribution because it does not target poor households. Individuals affected by the minimum wage are not primarily in households at the bottom of the income distribution but are spread across it. Consequently, welfare dependence decreases only marginally. The withdrawal of transfers or employment effects cannot explain the limited effect on poverty. Complementary simulations show that neither full compliance nor a markedly higher level of €12 per hour can render the minimum wage more effective in reducing poverty.
We present evidence on the extent of measurement error in German longitudinal earnings data. Qualitatively, we confirm the main result of the international literature: longitudinal earnings data are relatively reliable in a cross section but much less so in first differences. Quantitatively, in the cross section our findings are very similar to those of Bound and Krueger (J Labor Econ 9:1–24, 1991) and Pischke (J Bus Econ Stat 13:305–314, 1995) for the United States while we find even stronger evidence that first-differencing exacerbates measurement error problems. We also show that measurement error in our survey data is not “classical” as it is negatively correlated with administrative earnings and positively autocorrelated over an extended period of time. Additionally, we estimate a model of measurement error stemming from underreporting of transitory earnings shocks in combination with a white-noise component and make a number of methodological contributions. Our results are robust to the use of two different linked survey-administrative data sets and various other sensitivity checks.
The introduction of a statutory minimum wage in Germany in 2015 aimed at improving the welfare of low-wage workers but was also accompanied by concerns about distortions in Europe’s largest economy. This paper provides a comprehensive survey of results from the evaluation of the German minimum wage by compiling recent descriptive evidence and a systematic literature review on causal effects through 2022. On 1 October 2022, the minimum wage was raised legislatively by 15 percent to 12 euros per hour, which affected approximately 5.8 million employees and 23 percent of companies. The war in Ukraine and the coronavirus pandemic hit minimum wage workers and minimum wage firms harder than the rest of the economy. The minimum wage thus far had the strongest causal effects directly after its introduction. Hourly wages increased, while working hours decreased, resulting in mixed effects on monthly wages. Overall employment fell slightly, with a decline in marginal employment in particular. Companies’ wage costs increased, and as productivity did not change, profits declined.
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