1. The German minimum wage experience
Wage convergence in Europe
FES Budapest
Budapest, March 27th, 2018
Tipps für die Nutzung der Titelfolie
Der Titel ist optimiert für 1-2 Zeilen.
Prof. Dr. Ulrich Walwei

2. Overview Formation Regulation Impacts: Preliminary findings
What we know by now
The German minimum wage experience

3. Background for introducing a minimum wage in Germany
Significant increase of employment with low hourly wages at least until the beginning of the current decade
Decreasing share of firms covered by collective agreements
Increasing implementation of sectoral minimum wages with a binding character
The German minimum wage experience

4. General German minimum wage since 2015
Introduction of a binding minimum wage of 8.50 Euro per hour (8.84 Euro since January 2017)
Transitional period for certain industries until December 2016:
Social partners were allowed to arrange hourly wages below the minimum wage level (partly used in Eastern Germany)
Certain exemptions are still effective:
Long-term unemployed
Youngsters not older than 18 years
The German minimum wage experience

5. Theoretical consideration: Wage distribution and minimum wage
wage distribution without minimum wage
wage distribution with minimum wage
The German minimum wage experience

6. Potential impacts of minimum wage regulations
Wages
 e.g. depending on level of minimum wage, arrangement of supplementary grants and impacts on working hours
Reactions of firms
 e.g. concerning recruitments and dismissals
Employment
 e.g. regarding different industries or forms of employment
The German minimum wage experience

7. Wage growth in 2015 West (%) East (%) Total 2.3 3.9 Skilled 2.1 3.8
Unskilled
3.5
7.9
Firms with less than 50 employees
4.9
Firms with more than 1000 employees
2.2
2.8
Highly affected industries
1.5
7.2
Weakly affected industries
2.5
Source: Mindestlohnkommission (2016); Calculations: Philipp vom Berge
The German minimum wage experience

8. Wage distribution, 2014 and 2015
Note: Only employment relationships of employees aged 18 and over, excluding apprentices, trainees, semi-retired and other specific types of employment.
Source: First evaluation report of the Minimum Wage Commission 2016
The German minimum wage experience

9. Reactions of „affected“ firms: First findings
No substantial increase in dismissals but reluctant recruitment
Reduction of working hours
Increased density of work
Higher prices for goods and services
Less further training
More difficulties reported by firms to fill vacancies at minimum wage level (compared to previous low wage level)
The German minimum wage experience

10. Employment by different types 2012 - 2017
Source: IAB-Arbeitsmarktspiegel; Calculations: Philipp vom Berge
The German minimum wage experience

11. Employment in catering by different types, 2012 – 2017
Source: IAB-Arbeitsmarktspiegel; Calculations: Philipp vom Berge
The German minimum wage experience

12. Impacts of minimum wage regulation: What we know by now
Noticeable wage increases for „affected“ employees
No negative impact on GDP
Low employment losses: mainly in Eastern Germany and due to lower recruitment
Strong decrease of marginal employment, partly substituted by more employment covered by social security
Low reduction of employed persons receiving additional social benefits
Firms select minimum wage workers more carefully
Rather limited use of exemption for long-term unemployed; regulation does not increase their employment probability
The German minimum wage experience

13. Impacts of minimum wage: What we believe to know
Partly non-compliance
Increase in labour productivity
Lower turnover in affected labour market segments
Reduction of wage disparities within the lowest part of the distribution
Lower gender wage gap
Almost no impacts on the relative share of low wage employment
The German minimum wage experience