The minimum wage does not come for free

The federal government's new work program with the hopeful title "For Austria" has it all: it provides for a minimum wage of 1,500 euros gross. This would currently affect around 356,000 employees, including 149,000 full-time and 207,000 part-time workers. At current employment levels, this would result in additional costs of around 900 million euros per year for Austrian companies - with consequences particularly in the accommodation, catering, building maintenance and cleaning and cab sectors. "In some companies, the minimum wage would lead to a reduction in profits and thus reduce incentives for investment and new jobs. Other companies would try to pass on the increased wage costs to prices and thus to consumers," explains EcoAustria's Head of Research Tobias Thomas. In Germany, for example, cab prices rose by a good twelve percent following the introduction of the minimum wage in 2015, and by as much as twenty percent in eastern Germany. "Especially where price increases are not possible, the minimum wage will have a negative impact on employment and that would be particularly bitter," says Thomas. "As well-intentioned as minimum wages may be, they don't come for free: consumers, companies and especially low-skilled workers have to pay them. Around 50 percent of the unemployed in Austria have just a compulsory school leaving certificate, some older people can no longer keep up with the pace of digitalization and a large proportion of migrants also belong to the group of low-skilled workers. High minimum wages make it particularly difficult or impossible for them to access the labor market and thus to integrate and participate. Seen in this light, minimum wages turn out to be economically and socially unsustainable on closer inspection. Instead, it would be better to increase employment and income opportunities through better qualifications and education," says Thomas. Method: The calculation for companies' wage costs is based on wage tax statistics for 2015. An extrapolation is made for all employees affected by the minimum wage based on the difference between the income of employees (excluding apprentices) with full-time, year-round pay and the minimum wage of EUR 1,500. For part-time employees, the average working hours of part-time employees (20.5 hours) were used and the wage cost effect was scaled accordingly. Employer contributions and payroll taxes are also included.
EcoAustria has been an independent economic research institute in the Austrian scientific landscape for five years. Using high-quality, scientific methods, EcoAustria examines issues relevant to economic policy and contributes to the current economic policy debate in Austria and abroad in a comprehensible form.