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Fiscal Effects of Minimum Wages – An Analysis for Germany

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  • Bauer, Thomas K.
  • Kluve, Jochen
  • Schaffner, Sandra
  • Schmidt, Christoph M.

Abstract

Against the background of the current discussion on the introduction of statutory minimum wages in Germany, this paper analyzes the potential employment and fiscal effects of such a policy. Based on estimated labor demand elasticities obtained from a structural labor demand model, the empirical results imply that the introduction of minimum wages in Germany will be associated with significant employment losses that are concentrated among marginal and low- and semi-skilled full-time workers. Even though minimum wages will lead to increased public revenues from income taxes and social security benefits, they will result in a significant fiscal burden, due to increased expenditures for unemployment benefits and decreased revenues from corporate taxes.

Suggested Citation

  • Bauer, Thomas K. & Kluve, Jochen & Schaffner, Sandra & Schmidt, Christoph M., 2008. "Fiscal Effects of Minimum Wages – An Analysis for Germany," Ruhr Economic Papers 79, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:79
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    More about this item

    Keywords

    Minimum wages; employment; public budget; fiscal effects;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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