Is the minimum wage bad for society?

Conclusion - the business blog

The minimum wage has not cost jobs, they say. Now it is to be increased. Is it really that safe?

Hairdressers in the east often get the minimum wage.

Germany is in its biggest recession since the war, and what is the minimum wage doing? He rises. This was decided by employers and unions last week, and they deviated from the actually intended principle: the minimum wage should actually rise as quickly as the other wages in Germany. It's not going up that fast in the next twelve months. But then the amount suddenly increases significantly - in two years by almost twelve percent, to 10.45 euros an hour. The goal is political. The campaign has long been running for the minimum wage to be raised significantly, namely to 12 euros. The minimum wage is to be socially upgraded, Labor Minister Hubertus Heil is part of the movement: 12 euros are "a good orientation," he said last.

Whether this is a good idea is discussed less often. Economists have gotten a little on the defensive in this debate. A quote from Hans-Werner Sinn is often held up to them: The minimum wage endangers 900,000 jobs, the former Ifo president said before the introduction. It quickly disappeared that Sinn did not want to predict the number of unemployed, but said that without the minimum wage there could be 900,000 more jobs. In any case, the minimum wage was introduced in 2015, and Germany’s labor market still looked good after that. Dozens of studies have shown in a wide variety of ways that the introduction of the minimum wage did not cost any jobs. It is more likely that mini jobs have been turned into decent jobs.

But the debate does not end there. Because an increase to 12 euros would affect up to a third of the employees, depending on the bill, so you should take another look: Will it be too much if the minimum wage rises so high? Will jobs be lost after all? This could happen in a variety of ways: Perhaps the employer then automates many tasks because the employee becomes too expensive. Maybe he doesn't, but increases his prices and messes with some customers in the process. Can that happen if the minimum wage goes up that far?

Job losses due to the minimum wage are difficult to notice

Perhaps even earlier, as an older study by American economists Jonathan Meer and Jeremy West argues. At the beginning of the decade, the two tried to figure out the many different minimum wage studies that were floating around the world. They came to a relatively simple conclusion. Freely summarized, minimum wages usually come into play when the labor market is doing well. Other times, people are most concerned about jobs. Only when the fear of unemployment is low do they think about their wages. Typically these are the times when minimum wages are introduced or increased. In such an upswing, when wages are rising anyway, the minimum wage doesn't hurt that much. But it is always slowly taking away a bit of the dynamics on the job market. In the next downturn, he really takes a bite. But then many have already forgotten that this is due to the minimum wage.

Meer and West wrote their study a few months before the general minimum wage in Germany came about. It reads like the script for a decision. And what happened next? Together with its recommendation to raise the minimum wage, the minimum wage commission composed of employers and trade unions has published a new report on its effects. And that also brings back memories of Jonathan Meer and Jeremy West.

Has the minimum wage cost jobs since mid-2018?

In order to understand the effects of the minimum wage, the German minimum wage commission divides jobs into two groups: in industries that are strongly affected by the minimum wage and in industries in which the minimum wage has little effect because most wages are higher anyway. Again, it can be seen that mini-jobs were converted into decent jobs immediately after the introduction, especially in the industries concerned. But the picture turned around mid-2018. When the labor market slowly became more difficult, the sectors with the minimum wage were particularly affected. Suddenly the number of jobs grew much more slowly than in the other industries - especially in East Germany, where the minimum wage is paid more often than in the West.

The observation is still probably not statistically significant. But anyone familiar with the script can easily get the impression that the minimum wage is now costing jobs. In the corona crisis, the damage to the minimum wage could become even greater. And with an increase in the minimum wage anyway.

A recent minimum wage study from February gives an idea of ​​how this can be done. It showed that after the introduction of the minimum wage there were still many jobs, but not necessarily in the same companies. Many minimum wage earners wanted or had to change jobs, to a company that basically pays more than their old one. But if things go bad, these companies may also take on fewer workers.

Wouldn't it be better to have no job than a poorly paid one?

Now some friends of the minimum wage say: better no job than one that is poorly paid. But that does not correspond to reality. Anyone who loses their job becomes much more dissatisfied with their life. The blow is like a divorce or a serious illness. Especially since you don't fully recover from it for years.

It is unclear whether a higher minimum wage will ultimately lead to higher unemployment - even if jobs disappear. The demographic situation in Germany can mean that people retire faster than jobs disappear. But the minimum wage increase is not harmless. And Germany can need any job: Someone has to pay the contributions that will be used to finance pensions for the next few decades.

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Keywords: unemployment, labor market, minimum wage, recession
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The dangers of the minimum wage

By Patrick Bernau

The minimum wage has not cost jobs, they say. Now it is to be increased. Is it really that safe?

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