min_wage_synthetic_control

Unemployment is a result of many factors, and thus the policy response to it also varies. Countries have adopted several measures – from on-the-job training, and improved labor laws, subsidies, and labor union support to manage unemployment. However, minimum wage still is one of the most controversial, contested, and studied supply-side policy measures. We propose a synthetic control method approach to understand the effect of the introduction of minimum wage in Germany on total unemployment levels. We compare a bucket of non-minimum wage countries to Germany over the 1991-2021 time period. Evidence conveys a statistical significance of the treatment effect of nearly a 5% reduction in unemployment levels. This result contradicts the labor economics Keynesian theory, opening the path to advanced and contemporaneous models.