“Increasing the Minimum Wage Should Happen Gradually and Only Once the Crisis Is Over”

The Federal Ministry of Finance and the Federal Ministry for Labour and Social Affairs have released a white paper which should lay the foundation for an increase in the minimum wage. Professor Sebastian Siegloch, head of ZEW’s Research Department “Social Policy and Redistribution”, comments on this matter.

“The German economy is in the position to raise the minimum wage and should venture in raising it to twelve euros. However, this should happen gradually, and only once the crisis is over and the economy is back up and running. Such an increase could slightly increase the unemployment rate in the short-term. Although as current studies suggest, productivity would go up in the long-term and the negative effect on employment would disappear. At present, with an economy ravaged by the coronavirus crisis, a rapid increase would indeed be dangerous. This would especially be the case in sectors such as gastronomy, where employees are paid the minimum wage and should therefore receive an alternative form of support.

The increase in the minimum wage is also intended to tackle poverty. However, studies show that the minimum wage is not an accurate tool in combating poverty at the household level. Low-wage earners do not only live in households with low incomes, but also in those with higher earnings. And even where low-income earners live in low-income households, a higher minimum wage will not necessarily alleviate poverty. For increases in gross salary do not necessarily reach employees in their entirety, as the withdrawal of social security benefits is associated with this.”