Minimal Wages – Helping People Without Bothering the Economy

Minimal wages have a rather bad reputation among real and would be economists. They argue that increasing salaries for low qualified jobs make them unprofitable. Hence, by increasing minimal wages, employees would find themselves with no income at all instead of enjoying higher wages. Well, in science, a theory is only good until it is falsified: Two studies on the topic come to different conclusions.

First: In the most comprehensive study until today focusing on smaller and thus comparable regions, a team of the university of Berkeley finds that increasing minimal wages does not reduce employment. Such belief, the authors say, stems from various erroneous smaller studies that looked merely at the national level and ignored local and regional job market structures and dynamics.

Second: According to a study from the Swiss-German prognos minimal wages are beneficial for employees and for the state. Introducing a minimum salary of 8.5 euro per hour in Germany would improve the income situation of about five million workers, increase tax revenues and considerably lower federal social spending. Summing up, such a measure would benefit the German state by 14.5 billion euros.

Noteworthy! The two studies contradict the main arguments against introducing a minimal wage. Of course, an unreasonably high minimal wage could still harm employment. However, the insight that it does not automatically do so, is goodnews and should open doors for social and financially beneficial and economically tolerable minimal wages. Economists and politicians should demonstrate openness to new research and adapt positions where needed.

Sources: Die Zeit, Prognos

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