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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. Sergio Firpo, 2004. "Efficient Semiparametric Estimation of Quantile Treatment Effects," Econometric Society 2004 North American Summer Meetings 605, Econometric Society.
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    3. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2009. "Fiscal Effects of Minimum Wages: An Analysis for Germany," German Economic Review, Verein für Socialpolitik, vol. 10, pages 224-242, 05.
    4. 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. Kenneth Y. Chay & James L. Powell, 2001. "Semiparametric Censored Regression Models," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 29-42, Fall.
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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.
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