Posted by: Dirk | January 15, 2008

The debate on minimum wages in Germany – Alles “professoraler Unsinn”?

Olaf Scholz, Germany’s Minister für Arbeit und Soziales, defended the introduction of a minimum wage in the logistics sector in front of the Bundestag and claimed that it was a professor’s nonsense that minimum wages destroy employment. Let’s have a look at his economic reasoning:

Das Argument, dass der Mindestlohn im Postbereich Arbeitsplätze kostet, ist auch deshalb falsch, weil dabei von der Vorstellung ausgegangen wird, Briefe würden nicht befördert werden, weil die Beschäftigten 2 Euro mehr Stundenlohn bekommen. Diese Vorstellung kann man in keiner Weise nachvollziehen. Es ist nämlich nicht so, dass das Postvolumen zu- oder abnimmt, je nachdem, ob Menschen, die diese Briefe zustellen, nur 7 Euro oder 9,80 Euro pro Stunde verdienen.
(Beifall bei der SPD sowie bei Abgeordneten der CDU/CSU)

[..] Aber genau das ist die Behauptung, die hinter den Argumenten steckt, die einige uns hier immer wieder vortragen. Gerade in dem Bereich, über den wir heute debattieren, kann man sich nicht verschwurbelt auf das internationale Geschäft und auf die Globalisierung beziehen. Wer seiner Oma einen Brief schreiben will, hat keinerlei Probleme mit der Globalisierung. Es ist kein Problem, wenn für Briefzusteller ein Mindestlohn von 9,80 Euro gezahlt werden wird.

Mr Scholz says that a wage rise of 2 euros (per hour) will not affect the quantity of transported letters. This is his only argument, as far as I can see it, against the opposition’s cry that introducing minimum wages will kill jobs. So, what to make of it? Well, I find that Mr Scholz misses a very important part here. He disconnects the wages from the price charged by Deutsche Post. But wages are costs, as everybody knows. Higher wages will translate into higher costs. According to Mr Scholz, higher wages do not influence quantity. This assumption is correct only if one thinks of Deutsche Post as a monopoly with clients that have no other options. But even then potentially lower costs might create extra business. And since a lot of businesses use letters, the costs affect the consumers as well.

However, the literature does not agree with me. Let’s see what Card and Krueger say advertising their book on the subject:

David Card and Alan B. Krueger have already made national news with their pathbreaking research on the minimum wage. Here they present a powerful new challenge to the conventional view that higher minimum wages reduce jobs for low-wage workers. In a work that has important implications for public policy as well as for the direction of economic research, the authors put standard economic theory to the test, using data from a series of recent episodes, including the 1992 increase in New Jersey’s minimum wage, the 1988 rise in California’s minimum wage, and the 1990-91 increases in the federal minimum wage. In each case they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs.

Well, probably they are right: Minimum wages do not lead to more unemployment. The debate on minimum wages is still raging in Germany, to my knowledge nobody ever mentioned this book. This is why I do not, though I never read it (but it certainly made my reading list). Myth and Measurement: The New Economics of the Minimum Wage is at least known to and supported by Paul Krugman in his latest book.

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