The new German statutory minimum wage in comparative perspective: Employment effects and other adjustment channels

Abstract:

Germany was one of only seven EU member states without a statutory minimum wage before its new legislation took effect in January 2015. We explore the consequences for wage structure, employment and companies.

The new wage floor brought significant increases for low-paid employees, with limited observable negative employment effects thus far. To explain these benign outcomes, we refer to institutionalist and behavioural theories and discuss a number of other adjustment channels for companies.

Preliminary evidence suggests that companies in sectors highly affected have responded by reducing working hours and/or increasing work intensity and prices. Some have cut special payments and non-wage benefits, reduced labour turnover and attempted to absorb higher wages by hiring more qualified staff. Non-compliance may also constitute an adjustment channel.