Evaluating the Minimum-Wage Exemption of the Long-Term Unemployed in Germany

Abstract

The authors evaluate the exemption of long-term unemployed job seekers from Germany’s national minimum wage. Using linked survey and administrative micro data, they rely on a regression discontinuity design to identify the effects of the policy by comparing hiring rates, employment stability, and entry wages around the administrative threshold between short-term and long-term unemployment. They find that the exemption is very rarely used and that the minimum wage binds irrespective of past unemployment duration. While the minimum wage led to a relative rise in entry wages for the long-term unemployed compared to the short-term unemployed, the authors do not detect a relative deterioration in their employment prospects.