The Impact of the Statutory Minimum Wage Act in Saxony

Tasks

On January 1, 2015, Germany implemented a statutory minimum wage of 8.50 euros per hour. The minimum wage is adjusted for the first time on January 1, 2017. The impact of the minimum wage is likely to be especially large in the Free State of Saxony, where a particularly large share of workers and firms is affected.

On behalf of the Chamber of Commerce and Industry Chemnitz, the Ifo Institute, Dresden Branch analysed the short-term effects of the German statutory minimum wage in the Saxon trade and industry sector.

Results

The analysis is based on an establishment survey of members of the Chambers of Commerce and Industry in Chemnitz, Leipzig, and Dresden, as well as of the Chamber of Crafts Chemnitz. In total, 2,668 establishments participated in the survey. These are the key results:

• The Saxon trade and industry sector has been particularly heavily affected by the German statutory minimum wage. A total of 54% of all participating establishments had to raise wages due to the new minimum wage.
• The impact of the minimum wage goes far beyond the minimum wage of 8.50 euros per hour. One third of the affected establishments, for example, have raised wages that were initially above the minimum wage level to preserve the skill wage premium. This even applied to establishments that did not pay wages below the minimum level in 2014, i.e. before the minimum wage was introduced.
• Establishments affected by the minimum wage have reacted in many different ways. Most notably, they have raised prices for their goods and services (58%), hired less employees (39%), postponed or cancelled investments (39%), reduced special payments (33%) or shortened their working time (32%). Apparently they aimed to avoid minimum wage-related layoffs in the short run.
• Partly due to these alternative adjustment measures and partly because of the employment-friendly business cycle, the German statutory minimum wage did not significantly reduce average total employment growth in affected establishments statistically within the first half year of its introduction. Significant employment effects, however, have been observed in establishments and branches with very low wage levels. Low-skilled workers have been hit particularly hard by layoffs and the reluctance to hire new workers.

Publications (in German)

Schubert, Antje, Johannes Steinbrecher, Marcel Thum and Michael Weber, Auswirkungen des flächendeckenden Mindestlohns auf die gewerbliche Wirtschaft im Freistaat Sachsen, ifo Dresden Studien 77, ifo Institut, 2016, Gutachten im Auftrag der Industrie- und Handelskammer Chemnitz | PDF Download

Schubert, Antje and Michael Weber, "Der flächendeckende Mindestlohn in Sachsen: Hohe Reichweite, vielfältige Reaktionen der Betriebe", ifo Dresden berichtet 23 (03), 2016, 05–11 | PDF Download