Fiscal Effects of Minimum Wages: An Analysis for Germany

Against the background of the current discussion on the introduction of statutory minimum wages in Germany, this paper analyzes the potential employment and fiscal effects of such a policy. Based on estimated labor demand elasticities obtained from a structural labor demand model, the empirical results imply that the introduction of minimum wages in Germany will be associated with significant employment losses that are concentrated among marginal and low- and semi-skilled full-time workers. Even though minimum wages will lead to increased public revenues from income taxes and social security benefits, they will result in a significant fiscal burden, due to increased expenditures for unemployment benefits and decreased revenues from corporate taxes.