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240 IRET Congressional Advisory 1 (2008)

handle is hein.taxfoundation/iretcgadv0237 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. May 19, 2008 Advisory No. 240 MINIMUM WAGE IN GERMANY'S POSTAL SECTOR SLASHES JOBS; A LESSON FOR THE UNITED STATES Executive Summary Many people support minimum wage laws because they assume that a government wage mandate will automatically and at little cost assist low-wage workers. In reality, minimum wage laws often hurt workers at the bottom of the wage scale. While the government can make it illegal for a job to pay below a certain wage, it cannot guarantee that the job will still exist at that wage. If the government sets the wage floor above the market-determined wage, workers who previously earned less money receive raises - if they remain fully employed. However, the often unintended consequences are that employers hire fewer workers, cut the hours of some workers, and reduce non-wage fringe benefits. Those changes hurt many of the workers who are supposed to be helped. Minimum wage laws also make it harder for workers to climb the income ladder by reducing the number of entry level jobs. The actual consequences of minimum wages are so contrary to what many people expect that it is informative to examine a recent case where the effects are especially obvious. The German government recently imposed a very steep and unexpected wage floor in its postal sector, following a successful lobbying campaign by the dominant mail carrier, Deutsche Post, and a trade union. With Germany's statutory postal monopoly ending at the start of 2008, Deutsche Post and the union had feared that the company would be vulnerable in the marketplace because of its high labor costs. The minimum wage provides an alternative barrier to competition. Several companies that intended to compete with Deutsche Post have scaled back their plans and are laying off thousands of workers. German mail users will not see the burst of competition they had expected. The minimum wage protects high-wage workers already in the industry. It blocks employment for many lower-wage workers who are seeking jobs. Instead of helping the poor, the new minimum wage in Germany's postal sector hurts low-wage workers struggling to find jobs, companies attempting to provide more competition in the German postal market, and German mail users. g~*I k3. * m go. g ~ Agg

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