Policy Article

Strange effects of introducing the minimum wage and how to avoid them (original publication in German)

Kiel Policy Briefs, 86

In his Kiel Policy Brief the Kiel economist Alfred Boss concludes that due to specific rules in the German system of social insurance the introduction of the minimum wage may lead to net wage loss. If employees are entitled to social assistance (unemployment benefit II), disposable incomes may remain unchanged although gross wages increase (as a result of the minimum wage legislation). The reason is the reduction of social assistance. These effects can be avoided by changing the social insurance tax rates for wages up to 450 euros per month and by abolishing marginal tax rates of 100 percent in the system of social assistance.

Author

Alfred Boss

Info

Publication Date