The German National Minimum Wage Raised Employment Prospects of Unemployed Welfare Recipients

This paper investigates the effects of the German national minimum wage introduction and its subsequent up-rating on job finding rates of unemployed welfare recipients. While the literature is inconclusive on the sign of overall employment effects of the minimum wage, the range of estimates suggests that if effects are negative, they are likely to be rather small. However, such overall effects may mask negative effects on employment prospects of unemployed welfare recipients, who tend to be only loosely attached to the labour market. For the analysis, this paper uses a sample of unemployed welfare recipients based on high-quality administrative data and employs a difference-in-differences strategy by exploiting regional variation in the bite of the minimum wage in order to estimate the effects of the minimum wage. While theoretically ambiguous, estimates show that minimum wages had a beneficial and rather homogeneous impact on job finding rates of unemployed welfare recipients. Sensitivity analyses highlight the robustness of these findings.