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

1626 words - 7 pages

Minimum wage is the lowest legal compensation an employee is required to receive for their work and as such it has been viewed as an economic tool to prevent poverty, stabilise macroeconomic situations, boost employment, promote business growth, and control the labour market. Since the introduction of minimum wages legislation, minimum wages have been manipulated in order to achieve these results. Minimum wage legislation has been a controversial topic, many Economists disagree about how it influences the economy and its possible repercussions. In order to investigate the introduction of minimum wages to improve the economy and welfare of a nation it is important to look at the historical background behind the minimum wage debate. Classical theories regarded minimum wages as a cause of unemployment and were considered to be bad for businesses. These theories state that the employer should have complete control over their labour costs, and any government intervention would cause wages to increase. Classical theories, such as those stemming from Adam Smith or George Stigler, have been prevalent throughout economic literature since minimum wages have become an issue. Since not all economist and policy makes agree with these theories. John Maynard Keynes, for example, disagreed with the notion that reduced labour costs are beneficial in promoting business activity.
In order for this paper to analyses how minimum wages affect an economy is it worth mentioning what is to be considered good for the economy. It is questionable as to whether or not there is a society where every single citizen benefits from all of the legislation. This paper will take the view as for the greater good for the majority, for example, lower unemployment rates for those looking to work, a stimulated economy on the whole, fair conditions for the lower socio-economic, and fair labour costs for businesses.
Germany’s wage legislation has been praised by some for maintaining low unemployment levels, and criticised by some for setting wages below market value. When investigating German minimum wages it is difficult to draw effective accurate comparisons between other nations. There are many factors that differ between nations that affect minimum wages such as median wage, living costs, social security networks, and so on. Consequently this paper will not exclusively be using the theories and examples from all over the globe when looking into how minimum wage has affected the German economy and its public. Consideration has been taking as analysing how Germany has developed its own minimum wage system and how it has impacted modern German society.

Why Study Minimum Wage
Even throughout specialised literature there is very often contradictory arguments. This is due to the fact that many economic players are interested in the minimum wage. Altering it affects people directly, the employees and employers, increasing the cost of production can in turn increase the price of what is...

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