Hardly any recent economic-policy topic has aroused so much controversy as the introduction of a general minimum wage in Germany. The insistence that full-time employment must be rewarded by a socially acceptable income appeals at first glance to a general sense of justice, but it also contains considerable risks that run contrary to this sense of justice.

Since wages determine labour costs, job losses are likely in today’s low wage sector. These losses can arise either direct (through rationalisation) or indirect (through lowered price competitiveness of domestic producers). Correspondingly, also the goal of increasing aggregate demand is not achieved, as a rule, by the introduction of minimum wages. The social-policy goal of assuring a minimum income can thus be better achieved by public social transfers than by minimum wages. Here the Ifo Institute has proposed the model of Activating Social Welfare.

Ifo Viewpoints

Ifo Viewpoint No. 96: Market Order under Attack: Seizure of Power by Münchhausen, Jul 1, 2008.

Ifo Viewpoint No. 90: Christmas Fear: Angela and Minimum Wages, Nov 26, 2007.

Ifo Viewpoint No. 86: The Same Old Mistake: How to Tame the Competitors, Jul 11, 2007.

Ifo Viewpoint No. 72: The Next Welfare State, Mar 2, 2006.

Ifo Viewpoint No. 71: Six Principles of the Combi-Wage, Jan 17, 2006.

Ifo Viewpoint No. 64: Why Minimum Wages Hurt Germany, Apr 15, 2005.

Ifo Viewpoint No. 49: The German Disease and the Agenda 2010, Oct 24, 2003.