Policy Note 17: Minimum wage – a brake on employment without any effect on consumption

On June 30, 2017, the social partners agreed on a nationwide minimum wage of EUR 1,500 per month in Austria, thus following the federal government's guidelines from the spring. An evaluation of the sectors in which the agreement has been implemented is planned for 2020. "The agreed minimum wage is the second highest in Europe - only in Luxembourg is it even higher. At the equivalent of EUR 10.12 per hour, it is 14.5 percent higher than in neighboring Germany," explains Tobias Thomas, Director of the economic research institute EcoAustria.

The minimum wage acts as a brake on employment and investment. "If it were introduced in 2018, investment would be 0.4 percent lower compared to a situation without a nationwide minimum wage and employment would be reduced by around 6,000 workers. The unemployment rate would rise, particularly among the low-skilled. Here it would be 0.8 percentage points higher," says Thomas. The later the minimum wage is introduced, the smaller the effects, as wage increases would have taken place anyway. "However, even with a gradual introduction by 2020, employment will be at least 3,000 jobs lower than without the minimum wage," says Thomas.

The introduction of the minimum wage will not lead to an overall increase in real consumption due to the negative impact on employment. "If the minimum wage is intended to increase the consumption of private households, this goal will not be achieved," says Thomas. Overall, the introduction of the minimum wage is harmful from an economic point of view and should therefore be rejected, concludes an EcoAustria policy note published today.