The effects of the new statutory minimum wage in Germany: a first assessment of the evidence

Abstract

Germany did not establish a statutory minimum wage until 2015. The new wage floor was set at an initial level of €8.50 per hour. When it was introduced, about 11 percent of German employees earned less than that amount. Based on descriptive figures, qualitative research and difference-in-differences analyses, we provide an overview of the available evidence regarding some of the topics that have attracted the most attention in international research and policy debates: the effects on wages and the wage distribution including issues of compliance in relation to the implementation of the new minimum wage, on the risk of poverty, on employment and the impact on businesses for instance with respect to productivity, prices or profits. The evidence shows that the minimum wage has increased hourly wages significantly, while the effect on monthly salaries has been far less substantial, as companies have partly reduced contractually agreed-upon working hours. Besides reductions in working hours or increases in work intensity, companies highly affected by the introduction of the minimum wage have used price increases and have had to accept profit reductions as a response to the new wage floor. If studies found any employment effects, they were—whether positive or negative—rather small in relation to the overall number of jobs. As in other countries, the minimum wage has not helped to reduce welfare dependency and the risk of poverty. Non-compliance remains a challenge for the implementation of the new statutory minimum wage.