Minimum Wages and Employment - Theory and Empirical Evidence with a special emphasis on Germany E-Book

Peter Schmidt

• Herausgeber: GRIN Verlag
• Sprache: Englisch

Veröffentlichungsjahr: 2009

Beschreibung

Master's Thesis from the year 2008 in the subject Business economics - Economic Policy, grade: 1,0 (A), University of Wisconsin-Milwaukee (Department of Economics), course: Labor Economics II, language: English, abstract: 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.

Leseprobe

Table of Content

List of Figures

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.

2.9. 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.

Page 1

Page 3

Theory and Empirical Evidence with a special emphasis on Germany

List of Figures

Figure 1: The competitive minimum wage model .......................................................................... 5

Figure 2: The efficiency minimum wage model with imperfectly observable work effort ............ 7

Figure 3: The two- sector minimum wage model ........................................................................... 8

Figure 4: The monopsony minimum wage model ........................................................................ 10

Figure 5: The oligopsony minimum wage model ......................................................................... 11

Figure 6: Employment losses when alternative minimum hourly wages are imposed ................. 27

Page 4

Theory and Empirical Evidence with a special emphasis on Germany

1. Introduction

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”1compared to its competitors. Then it came to pass 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”2where 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”3as 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. In the second part, I will present a short history of the empirical work on minimum wages as well as different empirical papers that show ambiguous impacts of minimum wages on employment. The focus here lies on the effect of minimum wages on employment while effects on things like the overall wage distribution, aggregated output, prices or effects on particular groups of the population will be neglected because the major issue raised against minimum wages is the unemployment argument. In the third part of the paper, given the contemporaneous literature, the introduction of a minimum wage in Germany should be evaluated before some concluding remarks will be presented.

1The “Deutsche Post World Net” or “Deutsch Post AG” used to be the “Deutsche Bundespost”, a public firm that was privatized

in 1995.

2http://www.handelsblatt.com/News/Politik/Deutschland/_pv/_p/200050/_t/ft/_b/1403154/default.aspx/im-wortlaut-der-

brandbrief-der-wirtschaftsforscher.html(03/12/2008).

3„Institute für Arbeitsmarkt- und Berufsforschung“ („Institute for research on occupations and the labor market”).