Volume 67, Issue 2

This paper examines the effects of the minimum wage introduction in Germany in 2015 on the skilled crafts sector in Saxony-Anhalt. Using novel survey data on the skilled crafts sector in Saxony-Anhalt, we examine three questions: (1) How many employees are affected by the minimum wage introduction in the skilled crafts sector in Saxony-Anhalt? (2) What are the effects of the minimum wage introduction? (3) How did firms react to wage increase? We find that about 8 % of all employees in the skilled crafts sector in Saxony-Anhalt are directly affected by the minimum wage introduction. A difference-in-difference estimation reveals no significant employment effects of the minimum wage introduction. We test for alternative adjustment strategies and observe a significant increase of output prices.

We discuss a new scheme of subsidized jobs for unemployed people with extremely low job finding prospects. This scheme, referred to as Social Labour Market, primarily intends to promote their social inclusion. Research on public employment schemes has shown that it is of utmost importance to define very narrow criteria for participation in order to avoid lock-in-effects. Due to health issues and other severe employment impediments of the participants, the design of a social labour market should allow for flexible work arrangements and include some kind of mentoring (“job coaches”). We conclude that the scheme planned by the German government basically meets many criteria recommended by labour market researchers but still bears some risk of “creaming”. We recommend to start with a small number of participants. This should help to test the process of assigning participants and assess the effectiveness of different designs of the scheme before boosting the number of participants to the ultimate size.

Abtract The comment assesses two opposed approaches to design a social labor market for better social inclusion of the unemployed currently under debate in Germany. One approach is the so-called solidary basic income which would offer a choice to take up public employment to all unemployed on social welfare. We argue that the proposal raises serious concerns on both equity and efficiency grounds. In particular, it may lead capable unemployed into dead ends and generate economic losses, as it shifts reservation wages concerning private sector jobs upwards by a wide margin. The other approach is permanent subsidized employment for unemployed welfare recipients with no chance to regain regular jobs. We argue that this might be an efficient approach to foster social inclusion, provided that access to the targeted social labor market is strictly controlled, that subsidized employed is primarily organized within the private sector, and that subsidized employment is accompanied by social casework.

In order to make the labour market more socially inclusive, the new German coalition endeavours to introduce a new instrument, which will eventually create 150,000 temporary subsidized jobs. Compared with the tradition of manifold forms of ‘make work’ in the past, new features are the targeting of people with extreme distance from the labour market, a focus on social integration and participation rather than on transitions to unsubsidized employment, and the creation of concomitant support structures aiming at assisting workers to adjust to a situation unfamiliar to them.

Within the local fiscal equalization system of North Rhine-Westphalia, anticipated financial needs of municipalities are estimated by the use of regression analysis. In the recent past the previously exercised regression approach shows unexpected results concerning the main parameters determining intra-system allocation of general grants. Against this background the paper analyses the reasons for these parameter variations in order to identify an alternative approach to achieve regression results with higher accuracy and time stability both of which are of particular importance from a fiscal equalization policy perspective. It will be shown that the so-called robust regression is such an alternative method which leads – in case of its implementation – to divergent distributional effects compared to the status quo.

Many people consider Adam Smith the first economist to describe the functioning of capitalism. In fact, Smith must be considered less the discoverer of capitalism, but rather as its inventor. The economic laws Smith formulated are institutionally bound to the commercial society, to use the corresponding phrase of Smith, which at that time – at least in its liberal version – has not yet be materialized. In this sense, it represents a utopia of economic policy that still had to be realized. Smith’s comments on commercial society should therefore be understood less as a positive economic analysis than as a normative economic draft.