A 22 percent increase in the German minimum wage: nothing crazy!

TL;DR

This paper provides the first empirical analysis of the 2022 German minimum wage increase, showing positive wage effects, a reduction in working hours for some workers, and no negative employment impacts, using a large-scale survey and difference-in-differences methodology.

Contribution

It offers novel empirical evidence on the effects of a significant minimum wage hike in Germany, utilizing a large dataset and a rigorous difference-in-differences-in-differences approach.

Findings

Wages increased significantly for low-wage workers.

Working hours decreased mainly among minijobbers.

No negative impact on overall employment levels.

Abstract

We present the first empirical evidence on the 22 percent increase in the German minimum wage, implemented in 2022, raising it from Euro 9.82 to 10.45 in July and to Euro 12 in October. Leveraging the German Earnings Survey, a large and novel data source comprising around 8 million employee-level observations reported by employers each month, we apply a difference-in-difference-in-differences approach to analyze the policy's impact on hourly wages, monthly earnings, employment, and working hours. Our findings reveal significant positive effects on wages, affirming the policy's intended benefits for low-wage workers. Interestingly, we identify a negative effect on working hours, mainly driven by minijobbers. The hours effect results in an implied labor demand elasticity in terms of the employment volume of -0.2 which only partially offsets the monthly wage gains. We neither observe a negative effect on the individual's employment retention nor the regional employment levels.