By Andrea Barbara Schuessler
Germany's first nationwide minimum wage, introduced by Chancellor Angela Merkel’s government in 2015, did not lead to job losses, new research from the London School of Economics and Political Science released June 26 shows.
"The fact that we observe policy-enforced increases in wages without job losses implies that workers were paid below their marginal product,” Gabriel Ahlfeldt, associate professor of urban economics and land development at the LSE, said June 26. "This is not consistent with the standard labor economics model and suggests that employers could afford paying higher wages to low-wage earners."
"Overall, the policy, so far, appears to have led to some reduction in inequalities across individuals and regions," Ahlfeldt added. "It does not seem to have caused unemployment or outmigration in the economically weaker regions in the east, a fear that might explain why Germany was a late adopter of such a policy."
The fact that companies were able to balance the higher labor costs without redundancies suggests workers’ wages were previously below market rates, the researchers said.
"German regions have vastly differing levels of productivity and salary - for example, workers in Bavaria in Germany's southwest typically enjoy higher average wages than workers in the Mecklenburg, which neighbors Poland in Germany’s northeast,” the LSE said June 26. "The minimum wage policy therefore had a greater impact on pay in Germany's poorer regions, where many workers earn less than the 48 percent of the median salary, and a relatively smaller effect on wages in the richer areas, where fewer workers earn less than the minimum."
The LSE survey, published as a Centre for Economic Policy Research discussion paper, is the first of its kind to study the wider implications of Germany’s minimum wage policy on pay and regional migration, the LSE said June 26.
published in Bloomberg BNA July 27, 2018