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RWI Positionen #58


Roland Döhrn

Falsche Hoffnungen

Der Mindestlohn gibt kaum Impulse für die Konjunktur

The German government pins high hopes on the introduction of a uniform statutory minimum wage. In its latest annual economic report the government points out that a minimum wage would, on the one hand, make income distribution more equal and, on the other hand, stimulate aggregate demand. While there have been extensive discussions in the economic literature about the effects of a minimum wage on employment, which is expected to be negative, and on income distribution, which is mostly considered to be small, the impact on aggregate demand, however, has hardly been discussed so far. This paper fills that gap for Germany, and draws the conclusion that a statutory minimum wage would not significantly stimulate demand. Per se, a statutory minimum wage will not generate additional income. Instead, it will redistribute income at the expense of profits and in favor of labor income, mostly for simple work. The German government focuses on the latter fact, hoping that an increased labor income will generate additional demand, which is expected to be amplified by multiplier effects. However, this line of reasoning neglects two important aspects that would reduce the macroeconomic effects significantly. First, many companies are expected to raise their prices when labor costs rise, which reduces the purchasing power of income. Second, profits account for about 35% of disposable income. The minimum wage would particularly affect small companies, where profits and income of the entrepreneur household are closely linked. Thus, some entrepreneur households would have to curb their consumption expenditure when profits declined. All in all, one should not expect that the introduction of a uniform statutory minimum wage will provide a significant stimulus to aggregate demand.