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Impacts of minimum wages: a microdata analysis for the German construction sector

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Author Info

  • Marion König
  • Joachim Möller

Abstract

Purpose – In 1997 minimum wages were introduced in the West and East German construction sector. The purpose of this paper is to analyze their impact on wage growth and employment retention probability of affected workers. Design/methodology/approach – Following a difference-in-differences approach the paper proposes a method to identify the effects of this quasi-experiment despite the lack of information on working hours in the large panel microdata. The method determines the size of the treatment and control group by the maximum likelihood criterion. Findings – All results show positive wage growth effects of the minimum wage regulation in both parts of the country. When it comes to employment effects, the results clearly differ between the two parts of the country. The employment effects are negative for East Germany and positive for West Germany, although the latter are not always statistically significant. Research limitations/implications – Although there is a limit to the simple transferability of the results for the construction sector to other industries, the study provides some useful insights for this country concerning reactions to the minimum wage. This is the first paper analyzing the effect of minimum wages in Germany using microeconometric methods. Practical implications – As the minimum wage in the East German construction sector was much higher in relation to the median wage than in West Germany, a tentative conclusion of the different employment results might be that the trade-off between increasing wages for low-paid workers and the danger of job losses does not exist in this case if minimum wages are moderate. Originality/value – This paper provides valuable information on the impact of wage growth and employment retention probability in Germany.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal International Journal of Manpower.

Volume (Year): 30 (2009)
Issue (Month): 7 (November)
Pages: 716-741

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Handle: RePEc:eme:ijmpps:v:30:y:2009:i:7:p:716-741

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Related research

Keywords: Construction industry; Employment; Germany; Mathematical modelling; Pay; Pay structures;

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Citations

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Cited by:
  1. Hanna Frings, 2012. "The Employment Effect of Industry-Specific, Collectively-Bargained Minimum Wages," Ruhr Economic Papers 0348, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
  3. Ronald Bachmann & Marion König & Sandra Schaffner, 2012. "Lost in Transition? – Minimum Wage Effects on German Construction Workers," Ruhr Economic Papers 0358, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Arni, Patrick & Eichhorst, Werner & Pestel, Nico & Spermann, Alexander & Zimmermann, Klaus F., 2014. "Kein Mindestlohn ohne unabhängige wissenschaftliche Evaluation," IZA Standpunkte 65, Institute for the Study of Labor (IZA).
  5. Frings, Hanna & vom Berge, Philipp & Paloyo, Alfredo R., 2013. "High-Impact Minimum Wages and Heterogeneous Regions," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79828, Verein für Socialpolitik / German Economic Association.
  6. Werner, Thomas & Sell, Friedrich L. & Reinisch, David C., 2013. "Price effects of minimum wages: Evidence from the construction sector in East and West Germany," Working Papers in Economics 2013,4, Universität der Bundeswehr München, Economic Research Group.
  7. Alessio J. G. Brown & Christian Merkl & Dennis Snower, 2014. "The Minimum Wage from a Two-Sided Perspective," Kiel Working Papers 1906, Kiel Institute for the World Economy.

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