Labour Market Effects of a Nationwide Minimum Wage in Germany – a Sensitivity Analysis

The introduction of a nationwide minimum wage in 2015 in Germany represents a massive economic policy intervention in wage distribution. There is, however, a great deal of uncertainty over the effects that are expected to occur in the labour markets. In addition to information already available on wage distribution, additional assumptions need to be made. A central assumption is related to the wage elasticity of labour demand, another assumption is related to the share of low earners who are actually affected by a minimum wage regulation. An analysis by the Ifo Institute shows the effects of a minimum wage on average wages and the wage bill, as well as on the number of employees based on a range of rational assumptions.