Browsing by Subject "Adjustment channels"

This master's thesis examines how the statutory minimum wage reform introduced in 2015 has affected the German labor market structure and what conclusions can be drawn from it with an eye to the future. The purpose is to understand how the labor market has reacted and adapted to significantly increased labor costs in the short term. Additionally, we must consider the potential long-term adverse effects in Germany and the EU since we are gradually transitioning into an era of higher minimum wages. The topic of this thesis is partly motivated by the upcoming European minimum wage directive, whose main objective is to provide adequate working and living conditions for all European workers in the near future. The subject is also topical because the minimum wage's role is even more emphasized during the economic recession. The structure of the thesis is a literature review, and the latest scientific literature has been used as an aid in the analysis and interpretation of observations. The goal is also to find out where further research should be directed. The examination of the minimum wage effects is divided between the short, medium, and long term. The primary focus has been on evaluating the key adjustment channels behind the observed employment elasticities and to what extent these mechanisms could be utilized in future minimum wage reforms. In other words, how to efficiently avoid the possible harmful effects of the minimum wage. In the case of Germany, the focus is on the adjustment mechanisms (e.g., the price pass-through effect, a degree of monopsony power, reductions in working hours) used by firms and the employment market dynamics that could explain the relatively small-scale observed unemployment effects in the short and medium term, such as the degree of compliance with the policy and the level of market competition. The putty-clay model is used for the longer-term evaluation, where possible adverse effects are examined from the viewpoint of automation and digitalization. Examining the long-term effects is essential, but unfortunately, it has not yet been extensively studied. Evidence suggests that the current minimum wage development may accelerate capital-labor substitution and reduce the demand for low-skilled workers in automatable jobs. Because this development is slow, future research should concentrate on distinguishing between short-and long-term effects more effectively. At present, the long-term employment effects are still ambiguous and theoretical but potentially quite substantial due to investments in physical capital and technological solutions. Consequently, minimum wage increases and related policy adjustments should be made considering the country's economic reality.