The German minimum wage experience Wage convergence in

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

Background for introducing a minimum wage in Germany n Significant increase of employment with

General German minimum wage since 2015 < Introduction of a binding minimum wage of

Theoretical consideration: Wage distribution and minimum wage distribution without minimum wage distribution with minimum

Potential impacts of minimum wage regulations ¾ Wages e. g. depending on level of

Wage growth in 2015 West (%) East (%) Total 2. 3 3. 9 Skilled

Wage distribution, 2014 and 2015 Note: Only employment relationships of employees aged 18 and

Reactions of „affected“ firms: First findings ¾ No substantial increase in dismissals but reluctant

Impacts of minimum wage regulation: What we know by now n Noticeable wage increases

Impacts of minimum wage: What we believe to know n Partly non-compliance n Increase

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The German minimum wage experience Wage convergence in Europe FES Budapest, March 27 th, 2018 Prof. Dr. Ulrich Walwei

Overview Formation Regulation Impacts: Preliminary findings What we know by now The German minimum wage experience 2

Background for introducing a minimum wage in Germany n Significant increase of employment with low hourly wages at least until the beginning of the current decade n Decreasing share of firms covered by collective agreements n Increasing implementation of sectoral minimum wages with a binding character The German minimum wage experience 3

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) n Certain exemptions are still effective: ‐ Long-term unemployed ‐ Youngsters not older than 18 years The German minimum wage experience 4

Theoretical consideration: Wage distribution and minimum wage distribution without minimum wage distribution with minimum wage The German minimum wage experience 5

Potential impacts of minimum wage regulations ¾ Wages e. g. depending on level of minimum wage, arrangement of supplementary grants and impacts on working hours ¾ Reactions of firms e. g. concerning recruitments and dismissals ¾ Employment e. g. regarding different industries or forms of employment The German minimum wage experience 6

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 2. 3 4. 9 Firms with more than 1000 employees 2. 2 2. 8 Highly affected industries 1. 5 7. 2 Weakly affected industries 2. 5 3. 5 Source: Mindestlohnkommission (2016); Calculations: Philipp vom Berge The German minimum wage experience 7

Wage distribution, 2014 and 2015 Note: Only employment relationships of employees aged 18 and over, excluding apprentices, trainees, semiretired and other specific types of employment. Source: First evaluation report of the Minimum Wage Commission 2016 The German minimum wage experience 8

Reactions of „affected“ firms: First findings ¾ No substantial increase in dismissals but reluctant recruitment ¾ Reduction of working hours ¾ Increased density of work ¾ Higher prices for goods and services ¾ Less further training ¾ More difficulties reported by firms to fill vacancies at minimum wage level (compared to previous low wage level) The German minimum wage experience 9

31 / 3/ 201 31 2 / 5/ 201 31 2 / 7/ 201 31 2 / 9/ 201 30 2 11 /20 /3 12 0/ 1/ 201 30 2 / 3/ 201 30 3 / 5/ 201 30 3 / 7/ 201 30 3 / 9/ 201 30 3 11 /20 /3 13 0/ 1/ 201 30 3 / 3/ 201 30 4 / 5/ 201 30 4 / 7/ 201 30 4 / 9/ 201 30 4 11 /20 /3 14 0/ 1/ 201 30 4 / 3/ 201 30 5 / 5/ 201 30 5 / 7/ 201 30 5 / 9/ 201 30 5 11 /20 /3 15 0/ 1/ 201 30 5 / 3/ 201 30 6 / 5/ 201 30 6 / 7/ 201 30 6 / 9/ 201 30 6 11 /20 /3 16 0/ 1/ 201 30 6 /2 01 7 1/ Employment by different types 2012 - 2017 1. 08 1. 06 1. 04 1. 02 1 0. 98 0. 96 0. 94 all employees The German minimum wage experience employees with s. s. c. marginal employees Source: IAB-Arbeitsmarktspiegel; Calculations: Philipp vom Berge 10

31 / 3/ 201 31 2 / 5/ 201 31 2 / 7/ 201 31 2 / 9/ 201 30 2 11 /20 /3 12 0/ 1/ 201 30 2 / 3/ 201 30 3 / 5/ 201 30 3 / 7/ 201 30 3 / 9/ 201 30 3 11 /20 /3 13 0/ 1/ 201 30 3 / 3/ 201 30 4 / 5/ 201 30 4 / 7/ 201 30 4 / 9/ 201 30 4 11 /20 /3 14 0/ 1/ 201 30 4 / 3/ 201 30 5 / 5/ 201 30 5 / 7/ 201 30 5 / 9/ 201 30 5 11 /20 /3 15 0/ 1/ 201 30 5 / 3/ 201 30 6 / 5/ 201 30 6 / 7/ 201 30 6 / 9/ 201 30 6 11 /20 /3 16 0/ 1/ 201 30 6 /2 01 7 1/ Employment in catering by different types, 2012 – 2017 1. 12 1. 07 1. 02 0. 97 0. 92 all employees The German minimum wage experience employees with s. s. c. marginal employees Source: IAB-Arbeitsmarktspiegel; Calculations: Philipp vom Berge 11

Impacts of minimum wage regulation: What we know by now n Noticeable wage increases for „affected“ employees n No negative impact on GDP n Low employment losses: mainly in Eastern Germany and due to lower recruitment n Strong decrease of marginal employment, partly substituted by more employment covered by social security n Low reduction of employed persons receiving additional social benefits n Firms select minimum wage workers more carefully n Rather limited use of exemption for long-term unemployed; regulation does not increase their employment probability The German minimum wage experience 12

Impacts of minimum wage: What we believe to know n Partly non-compliance n Increase in labour productivity n Lower turnover in affected labour market segments n Reduction of wage disparities within the lowest part of the distribution n Lower gender wage gap n Almost no impacts on the relative share of low wage employment The German minimum wage experience 13