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The Effects Of Minimum Wage On Economies: An Analysis Of German Minimum Wages

1823 words - 8 pages

Thus far this paper has looked into the effects of minimum wage on a global scale. There is still much disagreement as to the effects of minimum wages. In order to make concise conclusions as to the effects of minimum wage this paper will take an examination of Germany’s minimum wage legislation. Germany has the largest economy and has the fourth lowest unemployment rates in the Eurozone. German is also one of five countries that have currently higher employment rates than before the global financial crisis. Some economists say this is due to Germany's ability to keep their labour costs at a minimum. In order to investigate this further it is worth to examine how Germany has dealt with minimum wage legislation previously. It is worth noting that German does not have a national minimum wage level, but rather many regional minimum wages depending on the requirements of work. Wages in Germany include many different minima determined at the infra-national level, as such as minimum wages can differ in relation to different sectors or regions. Joachim Wagner, a leading researcher in German Macroeconomics, analysed whether or not there was a wage curve, negative relationship between wage level and rate of employment, in German society in 1979 to 1990. Wagner restricted the data to only include German men working full time, females were at this time entering the workforce and thus omitted as a minority group, as well as measuring gross monthly earning. Wagner's results showed that there was no significant evidence of a wage curve in Germany but there was a steady wage in Germany regardless of the unemployment figures. Wagner null hypothesis was never rejected at a level of five percent which could indicate that there is a significantly weak wage curve, but there is not enough strong evidence to confirm a predominant wage curve. This highlights that there is a reluctant attitude to adjust the minimum wage level in situations of drastic changes in unemployment rates. This could imply that Germany has a background of relatively rigid minimum wage rates, and are seen as hesitant to make amendments. Coming from this background Germany appears to have aimed to keep its labour costs relatively low in comparison with other nations of similar wealth. In the time frame between 2001 and 2010 Germany's labour cost growth, not including the public sector, was less than the average growth in other Eurozone countries. Moreover, in the period between 2000 and 2008, unit labour costs, when adjusted for inflation, have remained unchanged in Germany. This trend was however reverted over the course of the 2011 and 2012 but the current level has not caught up to what it would have been if there had been an average expected growth. It seems Germany has taken action to keep labour costs down as a pose to a decline in social security benefits in response to the global financial deficits. Although the main ramification of this trade off meant that whilst Germany's...

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