One of the most important issues that was in the center of the political debate in Germany in the last few months is the introduction of minimum wages. It was caused by the politically forced imposition of a minimum wage in the sector for postal services which, in the view of many experts, provides a
competitive advantage for the major postal service company “Deutsche Post World Net”1 compared to its competitors. Then it happened that the “PIN – Group AG” one of the most important domestic competitors of the “Deutsche Post World Net” was threatened by insolvency as its largest shareholder the
publisher “Axel Springer AG” was no longer willing to invest money in the “PIN - Group AG”. Additionally, many newspapers published by Axel Springer AG wrote articles against the imposition of a minimum wage for many weeks and published many interviews with economic experts warning about the
negative effects of a minimum wage on the overall German labor market. Furthermore, political considerations, e.g. by the secretary of labor, to introduce a federal minimum wage in Germany even caused the chairmen of the eight leading economic research institutes in Germany to publish a letter in the
newspaper “Das Handelsblatt”2 where they advise politicians against the introduction of a federal minimum wage if (large) employment losses should be avoided. On the other hand, a few other researchers, experts and politicians like the “IAB”3 as a specific labor market research institute believe
that minimum wages even could create jobs and must not necessarily destroy them. This paper is motivated by this ongoing debate between economists and policymakers in the whole world.
That is why in the first part of the paper the major theoretical framework which is used by economists to analyze and empirically assess the impacts of minimum wages on employment should be presented.
Table of Contents
1. Introduction
2. The Theory of Minimum Wages
2.1. The Basic Competitive Labor Market Minimum Wage Model
2.2. The Model with Endogenous Effort
2.3. An Efficiency Wage Model
2.4. A Two- Sector Model
2.5. A Two- Sector Model with Searching for Covered- Sector Jobs
2.6. The monopsony Model
2.7. The Oligopsony Model
2.8. “Shock” Effects
2.9. Heterogeneous Workers
2.10. Lagged or Leaded Adjustment
3. The Empirical Evidence on Minimum Wages
3.1. A Short History of Empirical Research on Minimum Wages
3.2. The Minimum Wage Debate: Card, Krueger, Katz versus Neumark and Wascher
A. The Paper by David Card (1992a)
B. The Paper by Katz and Krueger (1992)
C. The Paper by Neumark and Wascher (1992)
3.3. Main Issues Raised about the Three Papers
A. Employment Effects and the School Enrollment Rate
B. The Appropriate Minimum Wage Measure
C. Lagged Minimum Wage Effects
D. The Utilization of Subminimum Wages
4. Minimum Wages in Germany
4.1. Research on Minimum Wages in Germany
4.2. State of Affairs in the German Minimum Wage Debate
5. Conclusion
Objectives and Topics
This paper examines the theoretical framework and empirical evidence concerning the impacts of minimum wages on employment, with a specific analytical focus on the contemporary political debate in Germany. The research aims to assess whether minimum wage imposition leads to disemployment effects or if alternative market structures allow for neutral or positive outcomes, contrasting findings from the U.S. "new minimum wage literature" with the German socio-economic context.
- Theoretical models of labor markets (Competitive, Monopsony, Oligopsony, Efficiency Wage)
- Empirical evaluation of U.S. minimum wage studies (Card, Krueger, Katz vs. Neumark, Wascher)
- Methodological debates regarding employment elasticity and school enrollment variables
- Analysis of the German minimum wage debate and the role of the social security system
Excerpt from the Book
2. The Theory of Minimum Wages
In the following paragraph different theoretical approaches of the effect of a minimum wage on employment including the two most important and popular ones of a labor market under perfect competition and monopsony should be presented.
2.1. The Basic Competitive Labor Market Minimum Wage Model
This basic model focuses on a single competitive labor market where homogenous firms or workers maximize their profit or their utility, respectively. The labor demand and supply functions that arise from this optimizations can be seen in the wage- employment ( number of workers or hours worked) diagram in figure 1.
Summary of Chapters
1. Introduction: Outlines the political motivation for minimum wage debates in Germany, triggered by sector-specific wage impositions and resulting economic controversy.
2. The Theory of Minimum Wages: Presents various economic models, including competitive, efficiency wage, two-sector, and monopsony models, to explain potential employment outcomes.
3. The Empirical Evidence on Minimum Wages: Reviews the evolution of empirical research in the U.S., highlighting the conflicting findings between key researchers like Card, Krueger, and Neumark.
4. Minimum Wages in Germany: Evaluates specific German studies and discusses why the minimum wage may not be an appropriate tool given existing social security structures.
5. Conclusion: Summarizes the ambiguity of empirical results and calls for more objective, rigorous research tailored to the German institutional framework.
Keywords
Minimum Wage, Employment, Germany, Labor Market, Monopsony, Empirical Evidence, Wage Elasticity, Competitive Model, Policy Debate, Social Security, Labor Demand, Unemployment, Efficiency Wage, Panel Data, Economic Theory
Frequently Asked Questions
What is the fundamental focus of this paper?
The paper evaluates the theoretical and empirical impacts of minimum wages on employment, contrasting traditional disemployment predictions with newer research that suggests neutral or positive outcomes under different market conditions.
What are the central thematic fields covered?
The research covers labor market theory, econometric methodology used in minimum wage studies, and the specific socio-political debate concerning the potential implementation of a federal minimum wage in Germany.
What is the primary objective of this research?
The goal is to determine if existing empirical evidence provides a clear verdict on the employment effects of minimum wages and to critically assess the applicability of these findings to the German labor market.
Which scientific methods are primarily employed?
The work utilizes a literature review and synthesis of secondary empirical data, comparing various econometric models—such as panel data studies and difference-in-difference approaches—used by international scholars.
What is discussed in the main body of the paper?
The main body details theoretical frameworks for labor markets, a historical overview of U.S. empirical research, a critical analysis of the scholarly "back and forth" between key authors, and an assessment of German-specific studies.
Which keywords best characterize this work?
Key concepts include minimum wage, employment elasticity, monopsony models, the German social security system, and labor market institutional frameworks.
How does the author characterize the German debate on minimum wages?
The author describes it as highly ideological and politically heated, noting that it lacks objective empirical depth and is often disconnected from the existing protective functions of the German social security system.
Why does the author suggest that "combined wages" might be superior for Germany?
The author argues that combined wages allow workers to be paid according to their marginal product while the government fills the gap to subsistence levels, thus preventing potential unemployment associated with a mandated minimum wage.
- Quote paper
- M.A. (USA) Peter Schmidt (Author), 2008, Minimum Wages and Employment - Theory and Empirical Evidence with a special emphasis on Germany, Munich, GRIN Verlag, https://www.grin.com/document/121801
