Friday, May 27, 2016

27/5/16: Ifo on the Effects of German Minimum Wage on Internships

Germany's Ifo institute issued the following press release concerning the effects of the recently introduced minimum wage law on internships (emphasis is mine):

"Munich, 27 May 2016 - The new minimum wage law in Germany has eliminated numerous internship positions. This is the result of the latest Ifo Personnel Manager Survey, conducted for Randstad Deutschland, which was published on Friday.

The number of companies offering internships has roughly halved. Before the introduction of the minimum wage, 70% of the companies said they offered voluntary internships, a number which has now fallen to 34%. This is also the case for compulsory internships, where the percentage of companies likewise fell from 62% to 34%.

The decline in internships is evident in companies of all sizes. For companies with more than 500 employees, the proportion of firms with voluntary internships decreased from 88% to 52% and for compulsory internships from 91% to 68%. In companies with fewer than 50 employees, the shares fell from 59% to 26% (voluntary) and from 49% to 21% (compulsory internships).

More than a few human resource managers indicated that because of personnel budget constraints the number of internships offered has been, in part, significantly reduced. Other companies now only offer compulsory internships or have reduced the duration of voluntary internships to three months. Some companies expressed complaints about the additional documentation requirements as well as uncertainty over the distinction between voluntary and mandatory internships.

Excluded from the minimum wage since 1 January 2015 are only internships that are compulsory as part of study or training regulations as well as voluntary internships of up to three months before or during vocational training or higher education. Additional exemptions from the minimum wage are the long-term unemployed for the first six months on the job."

Note: German labour markets are currently relatively tight when it comes to supply of skills, so reductions in internships, if confirmed by other sources, would be even more significant in such a setting.

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