How does the minimum wage help the economy?

The state minimum wage not only helps workers who previously received hourly wages of just a few euros. It helps by increasing consumption across the economy. This is shown by calculations by the Institute for Macroeconomics and Business Cycle Research (IMK) available to the SZ. The economic performance is accordingly up to 0.5 percent higher over the years.

The independent commission on the minimum wage has just recommended that the statutory minimum wage be raised by 2020 from EUR 8.84 per hour today to EUR 9.35 per hour. The government supports this. The minimum wage has been in place since 2015. Business associations and economists have repeatedly warned that state intervention in the labor market could destroy jobs en masse.

According to other researchers, the union-affiliated IMK Institute has now established that there is no question of this. The economic effects are therefore so positive because employment remains largely stable. It is true that mini-jobs fell away. However, a large part of these would be converted into jobs with regular social insurance.

The plus in consumption has great value

Initial reservations about the minimum wage have proven to be unfounded, emphasizes Federal Labor Minister Hubertus Heil (SPD), the lower wage limit has not developed into a job killer: "The minimum wage is good for many people and does not harm anyone in Germany." Heil lists who benefits above all: women, East Germans and employees without vocational training. For those who previously earned less, the lower limit means a significant wage increase: on average by almost 20 percent. According to the IMK, however, wages are also rising slightly above the minimum wage. And because employees with comparatively low salaries spend a larger part of their earnings on consumption than high earners, the wage increases have a strong impact: They increase consumption by 0.5 to 0.7 percent - and thus stimulate growth.

The scientists calculate for a period of ten years: With a minimum wage, economic output is consistently 0.25 percent higher than without it. Accordingly, the state earns more through taxes. If he spends this money on additional expenses, as has been the case since 2015, the effect of the minimum wage is even greater. Then the gross domestic product is constantly a good half a percent higher.

What is the value of that for the economy? Several research institutes have just revised their forecast for German growth in 2018 downwards by 0.5 percent, to less than two percent. The main reason for the pessimism is the global trade conflict sparked by the USA with punitive tariffs against Europe and China, among others. In turbulent international times, half a percent more gross domestic product due to the minimum wage is definitely worth a lot. It's kind of a buffer against Trump.

The IMK researchers are also criticizing: The wages in the Federal Republic have not exhausted the distribution scope for a long time, which results from the increase in productivity and the target inflation rate of the European Central Bank. The reason, for example, is the decrease in union-negotiated collective bargaining agreements. The minimum wage now prevents wages from fraying downwards. "It helps Germany move onto a more stable growth path that is not only based on export successes, but also on domestic demand."