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Employment Effects of a Sectoral Minimum Wage in Germany: Semi-Parametric Estimations from Cross-Sectional Data

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  • Kai-Uwe Müller
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    Abstract

    In this paper employment effects of a sectoral minimum wage in the German construction sector are estimated from a single cross-sectional wage distribution using parametric and semi-parametric models. Parametric functional form assumptions seem too restrictive and lead to implausible results. We suggest semi-parametric censored quantile regression models to relax these assumptions and find that employment levels would be 4-5% higher without the minimum wage in the East German construction sector. That the effect for the West is clearly smaller (only 1-2%) is theoretically plausible, since the level of the minimum wage in East Germany was set much higher in relation to the wage distribution. There is heterogeneity hidden in the mean effect: employment losses are mostly borne by young construction workers, employees not covered by collective bargaining agreements and individuals working in small establishments. Although the paper confirms previous findings of a negative employment effect for East Germany, its magnitude is substantially larger than previously estimated.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.361633.de/dp1061.pdf
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    Bibliographic Info

    Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1061.

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    Length: 41 p.
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:diw:diwwpp:dp1061

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    Keywords: Minimum wage; wage distribution; employment effects; labor demand;

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    1. Meyer, Robert H & Wise, David A, 1983. "Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth," Econometrica, Econometric Society, vol. 51(6), pages 1677-98, November.
    2. Joachim Ragnitz & Marcel Thum, 2007. "Zur Einführung von Mindestlöhnen: empirische Relevanz des Niedriglohnsektors," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 14(03), pages 36-39, 06.
    3. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
    4. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2008. "Fiscal Effects of Minimum Wages – An Analysis for Germany," Ruhr Economic Papers 0079, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Andreas Knabe & Ronnie Schöb, 2009. "Minimum Wage Incidence: The Case for Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(4), pages 403-441, December.
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    8. Kai-Uwe Müller & Viktor Steiner, 2008. "Mindestlohn kein geeignetes Instrument gegen Armut in Deutschland," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 75(22), pages 298-300.
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    13. Richard Dickens & Stephen Machin & Alan Manning, 1994. "Estimating the Effect of Minimum Wages on Employment from the Distribution of Wages: A Critical View," CEP Discussion Papers dp0203, Centre for Economic Performance, LSE.
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    15. James L. Medoff & Katharine G. Abraham, 1981. "The Role of Seniority at U.S. Work Places: A Report on Some New Evidence," NBER Working Papers 0618, National Bureau of Economic Research, Inc.
    16. Honore, Bo E. & Powell, James L., 1994. "Pairwise difference estimators of censored and truncated regression models," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 241-278.
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    18. Joachim Ragnitz & Marcel Thum, 2008. "Beschäftigungswirkungen von Mindestlöhnen – eine Erläuterung zu den Berechnungen des ifo Instituts," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(01), pages 16-20, 01.
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