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

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

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

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

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

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

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

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

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

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

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

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

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