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Estimating the employment effects of a minimum wage from a cross-sectional wage distribution. A semi-parametric approach

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  • Müller, Kai-Uwe
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    Abstract

    On the basis of a structural labor demand model employment effects of a minimum wage are estimated from a single cross-sectional wage distribution. The main contribution of the paper is to relax restrictive functional form assumptions of earlier papers by introducing more flexible semi-parametric censored quantile regressions to this framework. We apply the model to the sectoral minimum wage in the German construction sector. It can be shown that the semi-parametric estimates are within a plausible range: employment levels would be 4-5% higher without the minimum wage in the East where the minimum was binding. The effect for West Germany is markedly smaller, since the minimum wage level was lower in relation to the wage distribution. This semi-parametrically estimated structural approach can be a useful alternative to more popular panel data or difference-in-difference models when the necessary institutional variation or data base is either not available, or the necessary assumptions are problematic. --

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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62019.

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    Date of creation: 2012
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    Handle: RePEc:zbw:vfsc12:62019

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    1. Bauer, Thomas K. & Kluve, Jochen & Schaffner, Sandra & Schmidt, Christoph M., 2008. "Fiscal Effects of Minimum Wages: An Analysis for Germany," IZA Discussion Papers 3875, Institute for the Study of Labor (IZA).
    2. 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.
    3. Khan, Shakeeb & Powell, James L., 2001. "Two-step estimation of semiparametric censored regression models," Journal of Econometrics, Elsevier, Elsevier, vol. 103(1-2), pages 73-110, July.
    4. Dube, Andrajit & Lester, T. William & Reich, Michael, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt86w5m90m, Institute of Industrial Relations, UC Berkeley.
    5. 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, Ifo Institute for Economic Research at the University of Munich, vol. 14(03), pages 36-39, 06.
    6. Kenneth Y. Chay & James L. Powell, 2001. "Semiparametric Censored Regression Models," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(4), pages 29-42, Fall.
    7. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," Working Papers 060708, University of California-Irvine, Department of Economics, revised Jan 2007.
    8. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wage Incidence: The Case for Germany," CESifo Working Paper Series 2432, CESifo Group Munich.
    9. Dean Jolliffe & Bohdan Krushelnytskyy & Anastassia Semykina, 2001. "Censored least absolute deviations estimator: CLAD," Stata Technical Bulletin, StataCorp LP, StataCorp LP, vol. 10(58).
    10. Melly, Blaise, 2005. "Decomposition of differences in distribution using quantile regression," Labour Economics, Elsevier, Elsevier, vol. 12(4), pages 577-590, August.
    11. Koenig, Marion & Möller, Joachim, 2007. "Mindestlohneffekte des Entsendegesetzes? Eine Mikrodatenanalyse für die deutsche Bauwirtschaft," University of Regensburg Working Papers in Business, Economics and Management Information Systems 426, University of Regensburg, Department of Economics.
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