The minimum wage in Germany: Institutional setting and a systematic review of key findings

Dütsch, Matthias; Ohlert, Clemens; Baumann, Arne Article The minimum wage in Germany: Institutional setting and a systematic review of key findings Journal of Economics and Statistics Provided in Cooperation with: De Gruyter Brill Suggested Citation: Dütsch, Matthias; Ohlert, Clemens; Baumann, Arne (2025) : The minimum wage in Germany: Institutional setting and a systematic review of key findings, Journal of Economics and Statistics, ISSN 2366-049X, De Gruyter Oldenbourg, Berlin, Vol. 245, Iss. 1/2, pp. 113-151, https://doi.org/10.1515/jbnst-2023-0038 This Version is available at: https://hdl.handle.net/10419/333307 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Matthias Dütsch*, Clemens Ohlert and Arne Baumann The Minimum Wage in Germany: Institutional Setting and a Systematic Review of Key Findings https://doi.org/10.1515/jbnst-2023-0038 Received May 31, 2023; accepted April 13, 2024 Abstract: The introduction of a statutory minimum wage in Germany in 2015 aimed at improving the welfare of low-wage workers but was also accompanied by concerns about distortions in Europe’s largest economy. This paper provides a comprehensive survey of results from the evaluation of the German minimum wage by compiling recent descriptive evidence and a systematic literature review on causal effects through 2022. On 1 October 2022, the minimum wage was raised legislatively by 15 percent to 12 euros per hour, which affected approximately 5.8 million employees and 23 percent of companies. The war in Ukraine and the coronavirus pandemic hit minimum wage workers and minimum wage firms harder than the rest of the economy. The minimum wage thus far had the strongest causal effects directly after its introduction. Hourly wages increased, while working hours decreased, resulting in mixed effects on monthly wages. Overall employment fell slightly, with a decline in marginal employment in particular. Companies’wage costs increased, and as productivity did not change, profits declined. Keywords: minimum wage; systematic review; evaluation; Germany JEL Classification: J08; J30; J31; J50 Article Note: This article is part of the special issue “Minimum Wages –Experiences of European Countries”published in the Journal of Economics and Statistics. Access to further articles of this special issue can be obtained at www.degruyter.com/jbnst. *Corresponding author: Matthias Dütsch, Federal Institute for Occupational Safety and Health (BAuA), Nöldnerstr. 40–42, 10317 Berlin, Germany; and Chair of Sociology, Especially Work and Employment at the University of Bamberg, Nöldnerstr. 40–42, 96052 Bamberg, Germany, E-mail: [email protected] Clemens Ohlert and Arne Baumann, Federal Institute for Occupational Safety and Health (BAuA), Nöldnerstr. 40–42, 10317 Berlin, Germany Journal of Economics and Statistics 2025; 245(1–2): 113–151 Open Access. © 2024 the author(s), published by De Gruyter. This work is licensed under the Creative Commons Attribution 4.0 International License. 1 Introduction For many years, Germany was one of the few OECD countries lacking a statutory minimum wage. In response to a steady decline in collective bargaining coverage and a growing low-wage sector, a statutory minimum wage was introduced in 2015. At the time, the introduction of the minimum wage was subject to intense controversy. There were concerns that negative effects on employment could occur in Europe’s largest economy (Arni et al. 2014; Knabe, Schöb, and Thum 2014). In fact, the introduction of the German minimum wage was a major intervention in the German labour market, which benefitted approximately four million or 11 percent of all employees. It therefore represented the most important labour market reform since the Agenda 2010 programme of the Schröder government in the early 2000s. Subsequently, the minimum wage was raised four times by an independent Minimum Wage Commission, most recently to 12.41 euros per hour in January 2024. In October 2022, the minimum wage was increased from 10.45 euros to 12 euros through a one-time government intervention with the aim of reaching a higher level of workers’protection against low wages. From a conceptual point of view, a minimum wage is a policy measure that aims to increase the pay of low-wage earners and reduce in-work poverty. According to international studies, minimum wages have led to an increase in low incomes and reduced inequality (Autor, Manning, and Smith 2016; Lee 1999; Teulings 2003; DiNardo, Fortin, and Lemieux 1996). In Germany, there was also an expectation that the minimum wage would reduce the dependence of low-wage earners on supplementary benefit payments to top up their income to the subsistence level. Regarding employment, standard neoclassical theory predicts employment losses in a perfectly competitive labour market if the minimum wage is set above the market-clearing wage. Assuming that prevailing wage levels are market clearing rates, a minimum wage will cause unemployment. In contrast, monopsony theory claims that labour markets are imperfect. Transaction costs such as search, information or mobility costs may allow employers to exploit their bargaining power and set wages below market-clearing rates. In such a case, labour market outcomes might be inefficient, resulting in lower wages and lower employment levels than their counterfactual levels in a competitive framework. A minimum wage would thus increase wages and employment levels and promote the efficiency of the labour market (Borjas 2015; Manning 2003). From a different vantage point, wage cost increases under a minimum wage can affect the competitive conditions faced by companies. Labour productivity could increase due to a substitution of labour with capital (Aaronson and Phelan 2019). From a more behaviourally focused point of view, such as the wage–effort theory (Akerlof and Yellen 1990), minimum wages can influence workers’efforts and lead to an increase in their productivity. The average productivity of an entire industry can improve if less productive companies exit the market as a result of the minimum wage. However, firms’profits could decrease 114 M. Dütsch et al. duetohigherwagecostsifthesecannotbecompensated,e.g.byhigherprices (Draca, Machin, and Van Reenen 2011; Harasztosi and Lindner 2019). Due to political controversy, mixed international empirical evidence on minimum wage effects (Card and Krueger 1994, 1995; Neumark and Wascher 1992, 2008) and contradictory theory-based predictions, our paper aims to provide a comprehensive compilation of results from the evaluation of the German minimum wage. First, as countries with a statutory minimum wage differ in terms of institutional design, such as the setting of the minimum wage at the hourly or monthly level and adjustment mechanisms and exemptions (Arpaia et al. 2017; Eurofound 2022; OECD and AIAS 2021), we will provide insight into the institutional setting of the minimum wage in Germany. Second, since the introduction of the minimum wage, the economic environment will be examined, and adjustments to the minimum wage will be described. Third, and at the core of the paper, is a compilation of the results of 38 extensive studies commissioned by the Minimum Wage Commission thus far, as well as numerous academic papers from universities and research institutes. This study thus goes beyond the four literature reviews by Börschlein and Bossler (2019), Bruttel (2019), Bruttel, Baumann, and Dütsch (2018) and Caliendo, Schröder, and Wittbrodt (2019) and provides a more comprehensive assessment of the impact of the minimum wage in Germany. For each of the central evaluation criteria specified in the Minimum Wage Act, “appropriately protecting workers”,“avoiding employment losses”and “enabling fair and functioning conditions of competition”, we present descriptive findings on the most recent impact of the minimum wage in the years 2021 and 2022, for which no causal studies are yet available. In these descriptive analyses, we take a close look at the consequences of the coronavirus pandemic, Russia’s war against Ukraine and the significant increase in the minimum wage to 12 euros. This is particularly relevant because separating minimum wage effects from the effects of other events, such as the pandemic or the war in Ukraine, will remain an important methodological task in future minimum wage research. We then carry out a systematic literature review of the causal effects of the minimum wage in the years 2015–2020. For each criterion, we try to answer our research question: What effects did the minimum wage have? In light of the comprehensive research literature, we note where the evidence converges to solid insights and where the results consistently differ or are ambiguous. Fourth, we summarize the main findings and offer an outlook on topics for future research on the minimum wage in Germany. 2 Institutional Setting After many years of controversial discussions in Germany (Bosch 2015), a statutory minimum wage was passed by the German parliament in July 2014 and came into The Minimum Wage in Germany 115 force on 1 January 2015 at a gross rate of 8.50 euros per hour. It applies to all workers, except employees younger than 18 years, apprentices, trainees and/or interns, long-term unemployed workers in the first 6 months after taking up a new job, and nonprofit and/or voluntary workers. In addition, for a transitional period until the end of 2017, wages below the statutory minimum wage were permitted in sectors with collectively agreed minimum wages that were declared generally binding by government decrees. This approach was applied in the meat processing, hairdressing, agricultural, temporary work, textile and clothing, and industrial laundry industries. The minimum wage for newspaper delivery workers was also set below the statutory level until the end of 2017. Since January 2018, such sectoral exceptions no longer exist. As measured by the Kaitz index for full-time employees, which is the ratio of the minimum to the median wage, the German statutory minimum wage in 2015 amounted to 48 percent, approximately equal to the minimum wages in the UK (49 percent) and the Netherlands (46 percent). France was at the top with an index of 62 percent, while Spain was at the bottom with 37 percent (OECD 2016). The proportion of workers affected by the new minimum wage was also high, corresponding to approximately 4 million jobs previously paying less than 8.50 euros (gross) per hour, or 11.3 percent of all jobs (Minimum Wage Commission 2016). In the United Kingdom, the coverage rate when the minimum wage was introduced was 5.3 percent (Low Pay Commission 2001). The makeup of the German Minimum Wage Commission was inspired by the model of the British Low Pay Commission, albeit with important differences. When the German Minimum Wage Commission was established, emphasis was placed on reflecting the social partnership in collective bargaining and on noninterference by the state in wage negotiations, both of which are constitutionally enshrined in Germany. To this end, the independent Minimum Wage Commission was established with the responsibility of deciding on the adjustment of the minimum wage every 2 years. Six of its members (three each) are nominated by the BDA (Confederation of German Employers’Associations) and the DGB (Confederation of German Trade Unions). The independent chairperson is appointed on a joint proposal by the social partners. In addition, there are two scientific members who have an advisory role and no voting rights. For the adjustment of the minimum wage, the Minimum Wage Act requires the commission to make an overall assessment of the minimum wage level that is appropriate “to contribute to the adequate protection of workers, to enable fair and functioning competitive conditions and to avoid jeopardizing employment”(§ 9 MiLoG). The Minimum Wage Act also stipulates that the commission has to follow the past development of collectively negotiated wage rates in its decision. 116 M. Dütsch et al. 3 Economic Context and Minimum Wage Adjustments The economic situation in Germany after the introduction of the statutory minimum wage in 2015 was characterized by robust economic growth, a high level of employment, relatively low unemployment and low inflation. The introduction and first increase of the minimum wage thus occured in a favourable economic context (Figure 1). From the second half of 2018 until the end of 2019, the economy slowed. From 2020 to 2022, the coronavirus pandemic and associated restrictions on social and economic life affected economic growth and employment levels. From the beginning of the pandemic, economic development was strongly influenced by the changing incidence of infection and the containment measures taken by the government. The sharp economic downturn in the first coronavirus wave in spring 2020, with a 10.5 percent quarter-on-quarter decline in gross domestic product (GDP) in the second quarter of 2020, was followed by slight economic recovery in the second half of the year as the pandemic situation eased. The sharp increase in infection rates in the second coronavirus wave at the beginning of 2021 resulted in a renewed GDP decline of 2.3 percent in the first quarter of 2021, which was in turn followed by a recovery in spring and summer. The year 2022 showed a similarly undulating course but with less pronounced fluctuations in economic performance 8,50 8,84 9,19 9,35 9,50 9,60 9,82 10,4512,00 8,60 8,50 8,40 8,50 8,60 8,50 8,40 8,40 8,80 8,70 8,60 8,60 8,60 8,50 8,40 8,40 8,80 8,70 8,60 8,70 8,90 8,80 8,80 8,90 8,80 8,70 8,70 8,60 8,60 8,30 8,70 9,80 11,5 1,5 1,9 2,2 3,6 1,9 1,4 3,6 1,3 2,7 3,1 1,3 2,1 0,2 0,3 1,4 0,1 1,9 0,7 -0,8 -10,5 -2,4 -1,2 -2,3 10,6 1,8 1,2 3,9 1,7 1,3 0,3 -12 -8 -4 0 4 8 12 6 7 8 9 10 11 12 GDP changes compared with the previous quarter in percent Euros Nominal minimum wage Real minimum wage Quarter-on-quarter GDP changes in percent (price-adjusted) Figure 1: German minimum wage increases and economic conditions. Note: The values for the real minimum wage are rounded to 10-cent amounts. Source: Federal Statistical Office; own calculations. The Minimum Wage in Germany 117 overall. The negative economic consequences of the Russian war against Ukraine replaced the pandemic as the greatest challenge for the German economy during 2022. This has led to further increases in inflation and the reception of many refugees from Ukraine, who entered the German social benefit system and the labour market. The Minimum Wage Commission made its first decision in June 2016 and increased the statutory minimum wage to 8.84 euros (gross) per hour beginning in January 2017 (Figure 1). The second decision of the commission in June 2018 led to a two-part minimum wage increase in January 2019 to 9.19 euros and in January 2020 to 9.35 euros. In view of the uncertainty about the duration and economic consequences of the coronavirus pandemic, the commission decided in June 2020 to set a four-step adjustment to 9.50 euros in January 2021, 9.60 euros in July 2021, 9.82 euros in January 2022 and 10.45 euros in July 2022. With the Act to Increase the Protection by the Statutory Minimum Wage and on Changes in Marginal Employment (MiLoEG), which came into effect on 1 July 2022, the German parliament increased the statutory minimum wage from 10.45 to 12 euros gross per hour as of 1 October 2022 by amending the Minimum Wage Act (MiLoG). The amendment suspended the regular adjustment procedure, according to which the Minimum Wage Commission would have made a decision on the minimum wage adoption in June 2022, which would have come into effect on 1 January 2023. Due to the change in the law, the date of the next adjustment decision of the Minimum Wage Commission was postponed by 1 year to 30 June 2023, when the Minimum Wage Commission decided by majority to increase the minimum wage to 12.41 euros per hour in 2024 and to 12.82 euros per hour in 2025. According to calculations by the Organisation for Economic Co-operation and Development (OECD), the Kaitz index for full-time employees ranged from 42 percent in Latvia to 66 percent in Portugal in 2021. Germany was in the midrange of these countries in 2021, with a value of 51 percent. With the minimum wage increase to 12 euros per hour in October 2022 by the German Bundestag, the Kaitz index increased significantly. According to data from the October 2022 Earnings survey (ES), the Kaitz index based on the median hourly wage of full-time employees was approximately 56 percent in October 2022. The Kaitz index for all employees, including those in parttime and marginal employment, was 63 percent in October 2022. Thus, the increase in the minimum wage to 12 euros led to Germany moving from a middling position in international comparisons into the top range of the rankings. Against this background, we describe in the following section what effects the minimum wage has had since its introduction in Germany and provide early insights into the increase to 12 euros. 118 M. Dütsch et al. 4 Findings on the German Minimum Wage 4.1 Coverage of the Minimum Wage As already mentioned, there were approximately 4.0 million employees 1 with hourly wages less than 8.50 euros in Germany prior to the introduction of the statutory minimum wage, according to data from the Structure of Earnings Survey (SES) from April 2014. 2 This figure corresponds to 11.3 percent of all employees who were affected by the newly introduced minimum wage (Mindestlohnkommission 2016: 39). The incidence of affected workers declined thereafter. In 2018, before the second increase in the minimum wage, there were approximately 2.5 million employment relationships in Germany with hourly wages below the statutory minimum wage of 9.19 euros (Mindestlohnkommission 2020: 56). This was equivalent to a share of approximately 6.6 percent of total employment. At the beginning of 2020, approximately 2.2 million employees were affected by the minimum wage increase to 9.35 since they had previously earned hourly wages below that value. This corresponded to a share of approximately 5.6 percent (Mindestlohnkommission 2023: 71). Coverage of the minimum wage increased again with the adjustment of the minimum wage by the Minimum Wage Commission to 10.45 euros in July 2022 (3.1 million jobs or 8 percent). With the legislative minimum wage increase to 12 euros in October 2022, the number and share of affected jobs increased further to 5.8 million or 14.9 percent of total employment (Mindestlohnkommission 2023: 71). The proportion of jobs covered by the minimum wage varies across regions and groups of employees. Data from the most recent Earnings Survey (ES) from April 2022 indicate a greater proportion of employees with an hourly wage at or below the binding minimum wage of 9.82 euros in eastern Germany (4.4 percent) than in 1The SES/ES contains main jobs and side jobs. Therefore, strictly speaking, it represents employment relationships and not employees. 2The 2014 and 2018 Structure of Earnings Surveys were mandatory and representative crosssectional establishment surveys. They each covered approximately 60 thousand establishments with at least one employee subject to social insurance contributions and provided detailed information on earnings and working hours for approximately 1 million employment relationships (Statistisches Bundesamt 2016). The earnings surveys (ES) of the years 2015, 2016, 2017 and 2019 were voluntary establishments surveys conducted without an obligation to provide information on earnings and working hours. The ESs were based on data from approximately 6 to 8 thousand establishments each. The New Earnings Survey, beginning in 2021, replaced the two previously mentioned (Structure of) Earnings Surveys of the Federal Statistical Office. Participation in the new ES is mandatory. Since January 2022, the survey has been conducted monthly via an online reporting procedure. It comprises a nominal sample of 58 thousand establishments with at least one employee subject to social security contributions (Statistisches Bundesamt 2022). The Minimum Wage in Germany 119 western Germany (3.8 percent) (Mindestlohnkommission 2023: 57). The proportion of affected women was also greater than that of men (4.3 percent; 3.4 percent). The same applies to employees with non-German nationality (5.6 percent) compared to German employees (4.1 percent). Coverage of the minimum wage was also more frequent than on average in companies with fewer than 5 employees (9.1 percent), among unskilled or semiskilled workers (9.4 percent), among fixed-term workers (6 percent) and among workers not covered by collective agreements (6.1 percent). Marginal part-time workers were particularly frequently affected by the minimum wage (14.7 percent). The differences between the employee groups were very similar at the introduction of the minimum wage and at its later adjustments (Mindestlohnkommission 2018: 64; 2016: 41). 4.2 Wages Regarding the evaluation criterion of worker protection, the focus is on the effects of the minimum wage on the wages and incomes of employees. Assessments of the effects of the minimum wage on hourly wages have thus far been carried out mainly with micro data from the German Socio-Economic Panel (GSOEP). 3 This survey contains information on monthly earnings and on contractually agreed and actual weekly working hours, which allows the calculation of hourly wages (Dütsch, Himmelreicher, and Ohlert 2019). The SES, an establishment survey, provides cross-sectional data and has been used for quasipanel analyses at the regional and establishment levels (Biewen, Fitzenberger, and Rümmele 2022; Ohlert 2022) and for descriptive analyses. 4 The administrative data of the Integrated Employment Biographies (IEB) have been used less frequently, as they do not contain information on working hours on a regular basis. Studies using the IEB therefore supplemented or imputed working hours from other datasets. The IAB Establishment Panel (IAB EP), which is a representative panel of establishments in Germany, is also regularly used to study the effects of the minimum wage on company-level variables such as wage costs. For the most recent period between 2020 and 2023, only descriptive results are available. In this period, the German labour market was influenced by the coronavirus pandemic, Russia’s war against Ukraine and the increase in the minimum wage by 15 percent to 12 euros per hour. To provide full insight into the effects that the 3The GSOEP is a survey conducted annually since 1984 among approximately 16 thousand households with approximately 28 thousand persons, including approximately 13 thousand employees, with detailed information on main jobs (Goebel et al. 2019). 4Since 2022, the Earnings Survey has gathered monthly panel data, which are, however, not yet available. 120 M. Dütsch et al. In terms of living conditions and social security, monthly wages are more relevant for employees than hourly wages are. When the minimum wage increases, monthly wages may increase, remain constant, or decrease depending on changes in hours worked. Empirical findings on monthly wages based on the GSOEP, the IEB,theSES/ESandtheIABEstablishmentPanelarepresentedintherightfour columns of Table 1. Causal studies based on the GSOEP provide mixed results: While Burauel et al. (2018) could determine an effectof6.6percentonmonthlywagesin the short run up to 2016, Bachmann et al. (2020, 2022); Caliendo et al. (2023b) did not find any statistically significant effects of the introduction of the minimum wage in 2015 or of the minimum wage increases up until 2019. The latter result also applied to employee subgroups. Against the background of the positive minimum wage effects on actual hourly wages, the zero effect on monthly wages indicates that the weekly working hours of minimum wage employees may have been reduced. However, on the basis of the IEB, distinctly positive minimum wage effects on monthly wages were detected (Bossler and Schank 2023). Thus, a 10-percentagepoint increase in the applicability of the minimum wage caused an increase in monthly wages of approximately 4.4 percent in 2015 and 2016 and approximately 5.4 percent in 2017. Based on the IAB EP, the average gross wage sum per employee in companies affected by the introduction of the minimum wage grew by 3.8–6.3 percentmorein2015thaninunaffected companies (Bossler and Gerner 2020). Using the same data, Bossler et al. (2022: 41) found significant minimum wage effects of between 4.3 and 6.6 percent in all years 2015–2020. In the short term until 2015, Ohlert (2022) revealed an increase in monthly wages of approximately 3.0 percent on average and of 7.9 percent for low-wage workers in minimum wage establishments using the SES/ES. The effects on monthly wages are therefore stronger in studies that are based on firm data and that measure wage growth as a dependent variable. Regarding the adjustments of the minimum wage, Bachmann et al. (2022) determined a significant decline in monthly earnings of 8.3 percent in 2018 based on the GSOEP. Bossler et al. (2022), in contrast, found a growth of 1.8 percent based on the IAB EP. However, they revealed later declines of 2 and 3.8 percent as a result of the second and third increases in the minimum wage, respectively. Both Bachmann et al. (2022) and Bossler et al. (2022) explained the respective declines in monthly wages with a lower increase in the minimum wage compared to average wages during this period. There is evidence on the relationship between the minimum wage and collective bargaining negotiations in low-wage industries from a qualitative study (Bispinck et al. 2023). By examining the period from 2020 to 2022, the study found that the minimum wage increase to 12 euros per hour posed a particular challenge for collective bargaining. Thus, collectively agreed wages were threatened to be overtaken in many low-wage sectors. According to an analysis of 564 collective agreements The Minimum Wage in Germany 127 available to the Federal Statistical Office as of 21 November 2022, there were still a total of 180 sectoral and company collective agreements containing at least one pay group with gross hourly wages of less than 12 euros per hour. To avoid being overtaken by the minimum wage, the collective bargaining parties in almost all of the sectors examined in the study adjusted the collectively agreed wages accordingly. In some cases, the schedule of collective bargaining was even brought forward. The minimum wage-induced adjustments to collective pay scales led to above-average wage increases at the lowest pay scales. To a lesser extent, higher pay scales were also raised. Thus, the adjustment to the minimum wage has led to a significant increase in the level of collectively agreed wages in low-wage sectors. 4.3 Working Time Reducing working hours can be a measure taken by companies to lower wage costs that have increased as a result of the minimum wage. Adjustments in working hours can thus also be seen as a way for firms to adjust employment. On the other hand, employees may also react to a minimum wage-induced increase in hourly wages by reducing or expanding their working hours (Bachmann et al. 2022: 115). Due to mixed evaluation results regarding the scope and persistence of these effects, there has been a lively debate about the relevance of minimum wage effects on working hours in Germany. Our literature survey shows that existing studies largely find reductions in working time, particularly directly after the introduction and the first increase in the minimum wage. Forthemostrecentyears,onlydescriptiveevidenceontheworkingtimeof minimumwageworkersisavailable.Duetodatacollectionproblemsduringthe pandemic (see Section 3.1), the results for 2020 are particularly scarce. The results from the “coronavirus high-frequency online personal panel”(HOPP) survey showed that the percentage reduction in hours worked per week in May 2020, compared to the time before the pandemic, was significantly greater for minimum wage employees than for higher-paid employees (Jaenichen 2021). This result reflects the relatively strong impact of the pandemic on low-wage workers. According to the Earnings Survey from April 2022, the number of paid working hours for minimum wage workers was still lower than that in 2019, with 37.5 h for full-time employees, 20.4 h for part-time employees and 7.7 h for those in marginal employment (Mindestlohnkommission 2023: 136). Causal studies on minimum wage effects for the years 2015–2019 consistently identified a reduction in contractual working hours directly after the introduction of the minimum wage in 2015 (see Table 2 and Bachmann et al. 2020: 118f.; Bonin et al. 2018: 92ff.; Bossler and Gerner 2020; Ohlert 2022; Pusch, Seifert, and Santoro 2020). 128 M. Dütsch et al. Note that the scope of absolute changes in working hours differs strongly between studies and by research design. For example, Bachmann et al. (2020) reported for the year 2015 that contractual working time was on average reduced by 9 min per week Table :Causal effect of the minimum wage on working time. Minimum wage Year Contractual hours (GSOEP) Actual hours (GSOEP) Paid working time (SES/ES) Introduction ()  −%aZe Bonin et al. (:) −%aZe Burauel et al. (: ) n.s.aZe Bonin et al. (: ) −%aXg Caliendo et al. (b: f.) −%aYe Ohlert (:)  n.s.aZe −%aXe (Bachmann et al. : ff.) −%aXe (Bachmann et al. :)  n.s.aZe −%aXe (Bachmann et al. : ff.) −%aXe (Bachmann et al. :)  n.s.aZe − %aXe (Bachmann et al. : ,) − %aXe (Bachmann et al. :f.) − %aXg Caliendo et al. (b: f.) n.s.aXg (Biewen, Fitzenberger, and Rümmele :f.)  n.s.aZe − %aXe (Bachmann et al. : ,) − %aXe (Bachmann et al. :f.) First increase   −.%aZe (Bachmann et al. : ) –  −.%aZe (Bachmann et al. : ) – Second increase   n.s.aZe (Bachmann et al. : ) – Notes: Bite-measure: continuous versus binary; Data: aemployee versus bfirm data; Level of analysis: Xregional versus Yfirm versus Zemployees; Dependent variable: echange in working time versus fchange in working time growth versus gdistribution of working hours n.s., non-significant results; p.t.v., violation of parallel trends assumption. Source: Own compilation. The Minimum Wage in Germany 129 in regions with a higher minimum wage bite (by one standard deviation). For the same year, Bossler and Gerner (2020) noted a decrease in average contracted weekly working hours in minimum wage establishments of 0.22 h (13 min) compared to establishments without minimum wage employees. Burauel et al. (2020) revealed an average reduction in weekly working hours of 1.7 h in 2015 for employees with hourly wages less than 8.50 euros compared to employees with higher wages. Bachmann et al. (2022) and Ohlert (2022) showed that the measured working time effects were greater for low-wage workers than for average workers in regions or firms. For later years, the findings differ between studies that measure the bite of the minimum wage at the individual level and those that measure the bite at the regional or the firm level. Focussing on employees who earned less than the minimum wage before its introduction, Bachmann et al. (2020, 2022) did not find effects of the introduction of the minimum wage on working time in 2016 or in later years until 2019. For employees affected by subsequent increases in the minimum wage, Bachmann et al. (2022: 132ff.) did reveal significant reductions in working hours in 2017 and 2018 of approximately 14.4 percent and 17.8 percent, respectively, but not in 2019. By comparing regions with a higher minimum wage bite and regions with a lower minimum wage bite, Bachmann et al. (2020, 2022); Caliendo et al. (2023b) detected negative effects on contractual working time each year since 2015 using the GSOEP. Differentiation of working time effects with this approach pointed to stronger reductions in working time for part-time employees and marginal employees among women (in 2018 and 2019) and in the lower 40 percent of the distribution of monthly earnings (Bachmann et al. 2022: 137f.). Biewen, Fitzenberger, and Rümmele (2022) also measured the minimum wage bite at the regional level using the Structure of Earnings Survey in 2014 and 2018 and found no minimum wage effects on paid working time. Bossler and Gerner (2020) examined average working time in establishments affected by the minimum wage compared to that in other establishments. They revealed a working time effect of −0.4 percent in 2015 and no significant effect in 2016. Ohlert (2022) compared the change in paid working time of employees in minimum wage establishments to employees in other establishments. Thus, working time significantly decreased by approximately 3 percent on average and by 6 percent for low-wage employees in 2015. The average working time reduction was smaller among women than among men. Regarding actual working time, no statistically significant minimum wage effect was found for 2015 using a treatment definition based on individual wages (Bonin et al. 2018: 92ff.). The authors concluded that the introduction of the minimum wage could have led to a substitution of agreed working time with overtime. However, Bachmann et al. (2020); Caliendo et al. (2023b): 116ff.) and Bachmann et al. (2022: 131), identified even somewhat stronger declines in actual working time than in 130 M. Dütsch et al. contractual working time based on a regional approach. This suggests a decrease over time among minimum wage employees. 4.4 Noncompliance with the Minimum Wage The minimum wage is effective only if the provisions of the Minimum Wage Act are complied with and if the minimum wage is actually paid. However, deficits in compliance with the statutory minimum wage have been observed. Violations of the statutory minimum wage are in most cases associated with the failure to record or with misrecording of actual working hours. Information on hourly wages below the minimum wage obtained from the SES/ES, which is a survey of employers, differs significantly from that obtained from the household survey conducted by the GSOEP. However, importantly, neither survey is designed to determine the degree of noncompliance with the Minimum Wage Act in terms of their objectives nor the specific information requested. Previous studies on measurement errors have concluded that there are systematic differences between the two surveys. These can be attributed to the respective survey designs, to typical measurement errors, such as the rounding behaviour of respondents, and to the so-called mean reversion (Bachmann et al. 2020: 76ff.; Dütsch, Himmelreicher, and Ohlert 2019). There are also findings on the problem of incentives with respect to employerreported noncompliance. Since paying wages below the minimum wage is an offence, employers may not want to report such low wages and adjust their data before reporting (Garnero, Kampelmann, and Rycx 2015). This leads to differences in monthly wages, weekly working hours and gross hourly wages, especially at the lower end of the respective distribution between the SES/ES and the GSOEP. Accordingly, the ES reported approximately 1.0 million employment relationships below the minimum wage in 2015 and approximately 750 thousand in 2016 (Figure 3). In terms of all employment relationships, this resulted in shares of 2.8 percent and 2.1 percent. According to the GSOEP, a significantly larger group of employees earned less than 8.50 euros per hour after the introduction of the minimum wage. In 2015 and 2016, the GSOEP reported 2 million and 1.8 million employees, respectively, who earned less than the minimum wage when contractual working hours were examined (Burauel et al. 2017). In 2015, this corresponded to a share of 8.2 percent, and in 2016, it corresponded to a share of 7.0 percent of the population of approximately 26.2 million employees. In the following years, the figures for noncompliance fell somewhat, but in the GSOEP, they were still considerably greater than those in the SES/ES. In April 2022, on the basis of the ES, there were approximately 798 thousand employment relationships and thus a share of 2.1 percent with The Minimum Wage in Germany 131 hourly wages below the statutory minimum wage of 9.82 euros. For 2022, no figures are yet available from the GSOEP. For 2022, the monthly development of employment with hourly wages below the statutory minimum wage is available based on data from the ES (Figure 3). The number of jobs below the minimum wage was relatively high in the months of January, July and October, during which the minimum wage increased, and decreased quickly in the following months. The pattern indicates that the implementation of the minimum wage in companies is still incomplete immediately after an adjustment and increases over time. The measures in 2018 and 2019 were taken at a time when the respective new minimum wage levels had already been in effect for 16 and 4 months, respectively, and the companies had accordingly had time to implement them. Thus, part of the noncompliance with the minimum wage is a transitional phenomenon and can be traced to delays in its implementation. 4.5 Employment and Unemployment The second evaluation criterion mentioned in the Minimum Wage Act is that jeopardizing employment should be avoided. Descriptive evidence on selective 1.000 750 830 480 530 980 870 940 800 720 690 1.310 1.100 980 1.610 1.250 1.130 04/2015 04/2016 04/2017 04/2018 04/2019 01/2022 02/2022 03/2022 04/2022 05/2022 06/2022 07/2022 08/2022 09/2022 10/2022 11/2022 12/2022 s d n a s u o ht n i se eyo l p m efo r eb m uN Month/Year Minimum wage € 9.82 Minimum wage € 10.45 Minimum wage € 12.00 Minimum wage € 9.19 Minimum wage € 8.84 Minimum wage € 8.50 Figure 3: Development of minimum wage noncompliance over time. Source: Structure of Earnings Survey (SES) 2018, Earnings Surveys (ES) 2015, 2016, 2017, 2019, 2022. 132 M. Dütsch et al. employment indicators will be presented first. Causal analyses on the effects of the minimum wage on employment will be subsequently discussed. In 2015 and 2016, after the introduction of the minimum wage, employment grew more strongly in minimum wage sectors than in the rest of the economy. This was also true for western and eastern Germany (Figure 4). This development reversed in 2017 and 2018, when employment in the rest of the economy increased more strongly than did employment in minimum wage sectors. As a result of the measures taken to control the coronavirus pandemic, total employment decreased significantly beginning in the second quarter of 2020 in both parts of the country. There was an employment decline, particularly in the minimum wage sectors. This is because the minimum wage sectors were also those most affected by lockdown measures, for example, through the closure of restaurants, bars and retail shops. Accordingly, the number of employees in short-time work, which was the most important labour market policy measure during the coronavirus pandemic, increased sharply. 5 The proportion of employees receiving short-time benefits was greater in minimum wage sectors than in non–minimum wage sectors. Employment in the minimum wage sectors grew again and developed more dynamically than did employment in the non–minimum wage sectors from the fourth quarter of 2021 until the second quarter of 2022 (Figure 4). The reduction in employment in the minimum wage sectors during the pandemic was driven mainly by a decline in marginal employment (i.e. employment largely exempted from social security contributions), as only regular employees can receive short-time benefits. The subsequent strong employment growth after the pandemic, on the other hand, was due mainly to an increase in regular employment (i.e. employment subject to social security contributions). Empirically, it is non-trivial to distinguish whether differences between sectors during the COVID-19 pandemic were caused partly by the minimum wage or solely by the pandemic. The positive development of employment after the pandemic in 5Short-time work provides a wage replacement benefit through the German unemployment insurance system, with the aim of preventing unemployment in the event of a temporary loss of working hours. Entitlement to short-time work kicks in if the regular weekly working hours in a company are temporarily reduced for economic reasons or because of an unavoidable event. To mitigate the economic consequences of the coronavirus pandemic, the federal government decided in 2020 on temporary enhancements that were repeatedly extended. Access to short-time work was made easier for a limited period, most recently until the end of June 2023, and its duration was extended for a limited period, most recently until June 2022, from 12 to 28 months. The amount of the benefit was increased for a limited period and most recently until June 2022 from 60 percent (67 percent for workers with at least one child) of the lost net pay to 70 percent (77 percent) from the 4th month of receipt and 80 percent (87 percent) from the 7th month of receipt. Of the social security payments made by employers for their short-time workers, 100 percent were reimbursed by the unemployment insurance system until December 2021, and 50 percent were reimbursed until March 2022. The Minimum Wage in Germany 133 sectors highly affected by the minimum wage suggests the latter. In the causal studies listed below, indicators of the pandemic were used to separate the effects of the pandemic and the minimum wage. Numerous causal analyses are available on the effects of the statutory minimum wage on employment. These studies investigate different time horizons from their introduction in 2015 and 2016 to subsequent increases and up to January 2022 (Table 3). To a certain extent, the analyses apply different identification methods, use different databases and examine different outcome variables. This is again indicatedbythesuperscriptlettersandnumbers. -6,0 -5,0 -4,0 -3,0 -2,0 -1,0 0,0 1,0 2,0 3,0 4,0 2014 2015 2016 2017 2018 Q1/2019 Q2/2019 Q3/2019 Q4/2019 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021 Q3/2021 Q4/2021 Q1/2022 Q2/2022 West Germany Highly affected sectors Less affected sectors -6,0 -5,0 -4,0 -3,0 -2,0 -1,0 0,0 1,0 2,0 3,0 4,0 2014 2015 2016 2017 2018 Q1/2019 Q2/2019 Q3/2019 Q4/2019 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021 Q3/2021 Q4/2021 Q1/2022 Q2/2022 East Germany Highly affected sectors Less affected sectors Figure 4: Development of total employment. Source: Statistics of the federal employment agency, own calculations. 134 M. Dütsch et al. Table :Causal effect on employment. Regular employment Marginal employment Total employment (regular and marginal employment) Minimum wage Year Introduction ()  −. %aXe Caliendo et al. (:f.) .%aXe Stechert (:) . %aXe Garloff (:) . %aXe Holtemöller and Pohle (:) n.s.%aXe Schmitz (:) .%aYe Friedrich (:) −. %aXe Caliendo et al. (:f.) −.%aXe Stechert (:) −. %aXe Garloff(:) −. %aXe Holtemöller and Pohle (:) −.%aXe Schmitz (:) n.s.aYe −.% in East GermanyaYe Friedrich (:f.) −. %aXe Caliendo et al. (:f.) −.%bYe Bossler et al. (:) −.%bYe Bossler and Gerner (:) n.s.bYe Bossler, Gürtzgen, and Börschlein (:) n.s.bYe Bossler et al. (:) n.s.aXYe Bossler and Schank (:) . %aXe Stechert (:) .ppaYf Dustmann et al. (:) n.s.aXe Dustmann et al. (:) n.s.bXe Link (:) . %aXe Ahlfeldt, Duncan, and Seidel (, appendix table A)  n.s.aXe Bonin et al. (:) −.%aXe Bonin et al. (:) −.%aXe Bonin et al. (:) −.%bYe Bossler et al. (:) n.s.bYe Bossler, Gürtzgen, and Börschlein (:) n.s.bYe Bossler et al. (:) n.s.aXYe Bossler and Schank (: ) The Minimum Wage in Germany 135 Table :(continued) Regular employment Marginal employment Total employment (regular and marginal employment) Minimum wage Year . %aXe Ahlfeldt, Duncan, and Seidel (:)  −.%bYe Bossler, Gürtzgen, and Börschlein (:) −.%bYe (Bossler et al. :) n.s.aXYe Bossler and Schank (: )  −.%bYe Bossler, Gürtzgen, and Börschlein (:) −.%bYe Bossler et al. (:)  n.s.aXe Pestel et al. (:) −.%aXe Pestel et al. (:) −.%bYe Bossler et al. (:) −.%aXe Pestel et al. (:)  −.%bYe Bossler et al. (:)  n.s.aXe Caliendo, Olthaus, and Pestel (:) n.s.bYe Isphording et al. (: ) −.%aXe Caliendo, Olthaus, and Pestel (:) −.%bYe Isphording et al. (: ) −.%aXe Caliendo, Olthaus, and Pestel (:) −.%bYe Isphording et al. (:)  n.s.aXe Caliendo, Olthaus, and Pestel (a: ) −.%aXe Caliendo, Olthaus, and Pestel (a: ) −.%aXe Caliendo, Olthaus, and Pestel (a: ) First increase   n.s.aXe Caliendo, Olthaus, and Pestel (:) n.s.aYe Friedrich (:) −.%aXe Caliendo, Olthaus, and Pestel (:) n.s.aYe −.% in East GermanyaYe Friedrich (:, ) n.s.aXe Caliendo, Olthaus, and Pestel (:) n.s.aXe Caliendo, Olthaus, and Pestel (a: ) −.%bYe Bossler, Gürtzgen, and Börschlein (:) 136 M. Dütsch et al. of the wage distribution. However, they detected a negative effect for employees with earnings just above the minimum wage. Another aspect of competition is investment. Research shows that the introduction of the minimum wage had a short-term negative impact on investments but no longer-lasting negative effects (Bossler, Gürtzgen, and Börschlein 2020: 63ff.; Bossler et al. 2022: 88ff.). Total investment in companies affected by the minimum wage decreased by approximately 40 percent in 2015 in comparison to that in unaffected companies but did not further decrease after the minimum wage increases in the period from 2017 to 2019. Obviously, companies affected by the minimum wage withheld investments as an immediate reaction to the introduction of the minimum wage, while investment behaviour in later years was no longer influenced by the minimum wage. Furthermore, according to the studies by Bossler et al. (2020, 2022), profits fell due to the introduction of the minimum wage. In the period from 2015 to 2019, the introduction of the minimum wage led to a reduction in profitability of approximately 6.6 percent and just under 9 percent in affected companies (Bossler et al. 2018: 97f.; Bossler, Gürtzgen, and Börschlein 2020: 59; Bossler et al. 2022: 76ff.). This finding can be explained by the fact that personnel costs increased due to the minimum wage, while productivity did not change. The decline in profits due to the introduction of the minimum wage was greater in 2016 than in 2015. In a differentiated estimation, the effect was confirmed only for eastern Germany, not for western Germany, and only for companies with high competitive pressure, not for companies without it. In contrast, the increases in the minimum wage in 2017 and 2019 had no statistically significant effects on business profitability. The introduction and increases of the minimum wage may have influenced company start-ups and closures and hence the intensity of competition between businesses. Overall, company deregistrations and insolvency proceedings have declined continuously since 2015 (Mindestlohnkommission 2023: 195). The trends in company deregistrations and insolvencies in minimum wage sectors were similar to those in the economy overall. Findings from causal studies suggest at most moderate effects of the minimum wage on company density and the market entry rates of companies. However, various causal studies point to microbusiness closures due to the minimum wage. According to the Mannheim Business Panel, a slight reduction in the number of companies resulted from the introduction of the minimum wage, but no impact on company density was found (De Monte et al. 2022). An increase in the minimum wage in 2017 did not have an independent effect on the number of companies or company density. A separate analysis of overall market entry and exit rates at the regional level did not suggest any minimum wage effects. However, a subdivision by size class revealed a minimum wage-induced increase in market exits among microbusinesses with up to four dependent employees. These findings are The Minimum Wage in Germany 143 consistent with the results of Dustmann et al. (2022) and Bossler et al. (2022: 148ff.), who also identified an increase in market exits by microbusinesses due to the introduction of the minimum wage. In addition, the average size of companies in regions more affected by the minimum wage increased as employees earning less than 8.50 euros per hour moved from microbusinesses to larger companies. Thus, there were changes in the size structure of companies because of the introduction of the minimum wage. On the basis of analyses of data based on the IEB, Isphording et al. (2022: 74ff.) were unable to determine any minimum wage effects on the closure of companies –either overall or for small companies. 5 Conclusion and Outlook The minimum wage in Germany was introduced in 2015. It binds universally with only a few exceptions, some of which were limited in time. The Minimum Wage Law established adjustments in a 2-year cycle to be set by the Minimum Wage Commission. This was intended to make forward planning easier for companies and for social partners in collective bargaining. The structure and composition of the Minimum Wage Commission follow the social partnership logic that has characterized industrial relations in Germany since the end of the Second World War. Consequently, employer representatives and trade unions decide jointly and independently of the state on minimum wage adjustments. One consequence of this was that the adjustments to the minimum wage in 2016, 2018 and 2020 strictly followed past developments of collectively negotiated wages. Due to a growing political perception that the minimum wage was too low on the one hand and tailwinds from the debate about the initiative on adequate minimum wages in the European Union on the other hand, the statutory minimum wage was increased by parliament to 12 euros on 1 October 2022. After this one-time intervention, the government handed back the authority for future adjustments to the Minimum Wage Commission. Accordingly, the commission decided in June 2023 to further increase the minimum wage level up to 12.41 euros from the beginning of 2024 and to 12.82 euros in 2025. Ten years after the introduction of the statutory minimum wage, comprehensive evidence on the causal effects of the minimum wage allows us to point out several solid insights. The strongest effects of the minimum wage were thus far observed after its introduction. In accordance with the depth of intervention of the minimum wage in the wage structure, approximately 4 million employees benefited, and approximately 12 percent of the companies were required to make adjustments. Hourly wages calculated on the basis of contractual working hours increased due to the introduction of the minimum wage. This was accompanied by a decrease in contractual working hours. Accordingly, the findings on the effects on monthly 144 M. Dütsch et al. wages remain ambiguous. The introduction of the minimum wage had delayed negative effects on both contractual and actual working hours, but there is no conclusive evidence on the minimum wage effects on hourly wages measured on the basis of actual working hours. However, the increases in contractual hourly wages were mirrored by an increase in wage costs and a reduction in profits for companies. By lifting the bottom of the wage scale, the minimum wage reduced the wage dispersion in Germany. Microbusinesses and those under competitive pressure experienced the most stress from the introduction of the minimum wage. This ledtotheclosureofmicrobusinessesduetotheminimumwage.Duetostrong economic growth in the years after its introduction, the minimum wage had no adverse effects on overall employment or unemployment levels. Compared to the impact upon introduction, the effect of the subsequent adjustments by the Minimum Wage Commission on all of these variables was much smaller and therefore also more inconsistent. In view of the causal findings thus far, numerous open questions remain. This concerns wage and working time effects for marginal groups in the labour market, which cannot be thoroughly examined causally due to the small number of cases in the GSOEP. Such causal studies can be carried out in future evaluations with data from the new Earnings Survey (ES), which was introduced in 2021. Another major problem is the valid measurement of working hours or, alternatively, the total lack of information on working hours in certain datasets. This limitation cannot be remedied retrospectively and will remain a major challenge for future minimum wage research. There is also hardly any evidence on the effects of the minimum wage on vocational training participation among young adults. At the company level, minimum wage-related changes in vocational training and further training are largely unexplored. Finally, there is hardly any evidence on the effects of the German minimum wage on consumer prices. Research on the German minimum wage will now increasingly focus on current developments. These include the economic distortions caused by the coronavirus pandemic and the war in Ukraine as well as the (simultaneous) sharp increase in the minimum wage to 12 euros. A legislative increase in the minimum wage to 12 euros affected approximately 5.8 million employees and approximately 23 percent of the companies in Germany. It thus had a greater impact than the introduction of the minimum wage. Based on the previous minimum wage of 10.45 euros in July 2022, this represents an increase of approximately 15 percent. In real terms, this figure constituted an increase of approximately 13 percent. Depending on which data are used, the German minimum wage is now just below or just above the internationally used benchmark for adequate minimum wages of 60 percent of the median wage, which is also mentioned in the EU directive on adequate minimum wages in the European Union. Based on data for full-time employees from the ES, the minimum The Minimum Wage in Germany 145 wage amounted to approximately 56 percent of the median wage in October 2022. Using data for all employees from the same data source, the minimum wage reached approximately 63 percent of the median wage. The economic environment and labour supply and demand have changed significantly since the introduction of the minimum wage. The German economy may not return to the growth rates observed from 2015 to 2018 in the foreseeable future. Moreover, countering the effects of sluggish economic growth, there is a shortage of labour throughout the entire economy due to demographic changes. Future research will thus have to answer the questions of how the increase in the minimum wage to 12 euros interacts with these changed conditions at the macro level and whether this increase has led to a continuation of previous minimum wage effects or whether its effects differ in nature and scope. Acknowledgments: We are grateful to the editor and the two anonymous reviewers for their helpful comments. The views expressed in this paper are those of the authors. 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