It pays to vary regional wage floors

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Some economists predicted a million job losses when Germany’s national minimum wage was introduced in 2015, says Jens Suedekum. That didn’t happen.

Studies suggest minimum wages won’t have a detrimental effect on employment provided they don’t exceed a certain threshold; one of the most renowned pieces of research suggests two-thirds of the median wage.

That threshold would currently imply an hourly wage of €13.20, while the current federal lower limit is €9.60. But it would make sense to use this rule of thumb to tweak minimum wages on a regional basis rather than having Just one national figure.

Some areas will be able to tolerate higher lower limits thanks to higher average incomes. In Munich, for instance, the median hourly rate is EZ,

So companies would only start cutting jobs if they were forced to pay at least €17.88. And the cost of living is far higher in the big cities, so lower salaries in rustic areas would go further.

For someone on the current minimum, 19 of Germany’s 20 biggest cities are unaffordable. Rents in Munich are five times the typical level in northeast Germany. The median wage is €15, so the critical level for employment would be €9.60, the current rate.

Kris Paterson is a writer for

Source: Writschaftswoche

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