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We examine theoretically and empirically how wage subsidies and minimum wages interact regarding to employment opportunities, and how these interactive effects vary across different groups of workers. Assuming a neoclassical labor market and heterogeneous work, subsidized low-skilled worker displace less-skilled workers. The effect on non-subsidized low-skilled workers remains theoretically open. The empirical examination for the US shows that increasing minimum wages decreases less-skilled employment, haven’t an effect on non-subsidized low-skilled employment and induce a hump-shape of subsidized low-skilled employment. For Germany, however, several simulation studies indicate that the provided minimum wage and existing wage subsidies do not cause substitution effects, but lower employment of all workers in the low wage sector regardless of a grant funding.

Interaktionseffekte zwischen Mindestlöhnen und Lohnsubventionen. Eine Analyse zur Beschäftigung in den USA und in Deutschland