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Raising the Bar: Minimum Wages and Employers' Hiring Standards

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  • Sebastian Butschek

Abstract

Many scholars have studied the employment effects of minimum wages, but little is known about effects on the composition of hires. I investigate whether Germany's minimum wage introduction raised hiring standards, using worker fixed effects as a proxy for worker productivity. For the least productive workers hired, the minimum wage led to a 4 percentile point shift in the productivity distribution. This increase is missed using standard observable measures of worker productivity. The effects are larger with greater pre-reform screening intensity—indicating an employer response. This more selective hiring compensates about two-thirds of higher wage costs for the least productive hires.

Suggested Citation

  • Sebastian Butschek, 2022. "Raising the Bar: Minimum Wages and Employers' Hiring Standards," American Economic Journal: Economic Policy, American Economic Association, vol. 14(2), pages 91-124, May.
    • Handle: RePEc:aea:aejpol:v:14:y:2022:i:2:p:91-124
    DOI: 10.1257/pol.20190534
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    References listed on IDEAS

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    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    2. Christian Dustmann & Attila Lindner & Uta Schönberg & Matthias Umkehrer & Philipp vom Berge, 2022. "Reallocation Effects of the Minimum Wage," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 267-328.
    3. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2019. "The Effect of Minimum Wages on Low-Wage Jobs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1405-1454.
    4. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
    5. Sengul, Gonul, 2017. "Learning about match quality: Information flows and labor market outcomes," Labour Economics, Elsevier, vol. 46(C), pages 118-130.
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    Citations

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    Cited by:

    1. Paul Redmond & Elisa Staffa & Seamus McGuinness, 2025. "A Comparison of Approaches for Identifying Minimum Wage Workers: Direct Question Versus Administrative Earnings Data," British Journal of Industrial Relations, London School of Economics, vol. 63(4), pages 616-630, December.
    2. Abbate, Nicolás & Jiménez, Bruno, 2026. "Do minimum wage hikes lead to employment destruction? Evidence from a regression discontinuity design in Argentina," Journal of Development Economics, Elsevier, vol. 178(C).
    3. Liang, Ying, 2025. "Unpacking Wage Inequality: Minimum Wage Effects on Within- and Between-Firm Disparities," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325468, Verein für Socialpolitik / German Economic Association.
    4. Paul Redmond & Seamus McGuinness, 2025. "The impact of a minimum wage increase on hours worked: heterogeneous effects by gender and sector," Economica, London School of Economics and Political Science, vol. 92(365), pages 84-106, January.
    5. Link, Sebastian, 2024. "The price and employment response of firms to the introduction of minimum wages," Journal of Public Economics, Elsevier, vol. 239(C).
    6. Lochner Benjamin & Wolter Stefanie & Seth Stefan, 2024. "AKM Effects for German Labour Market Data from 1985 to 2021," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 244(4), pages 425-431.
    7. Katarina Zigova & Thomas Zwick, 2025. "Minimum Wages and Provision of Training," Economics of Education Working Paper Series 0242, University of Zurich, Department of Business Administration (IBW).
    8. Yasar, Serife, 2026. "Minimum wages and the gender wage gap within firms," Ruhr Economic Papers 1204, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    9. Yuko MORI & Hiroko OKUDAIRA, 2025. "Higher Minimum Wage, Stagnant Income? The case of women's work hours in Japan," Discussion papers 25042, Research Institute of Economy, Trade and Industry (RIETI).
    10. Carolin Linckh & Samuel Muehlemann & Harald Pfeifer, 2024. "Beggars cannot be choosers: Labor market tightness and hiring standards, wages, and hiring costs," Economics of Education Working Paper Series 0217, University of Zurich, Department of Business Administration (IBW).
    11. Larissa da Silva MARIONI, 2024. "The effects of minimum wage on education acquisition in Brazil," International Labour Review, International Labour Organization, vol. 163(4), pages 545-573, December.
    12. Ma, Shuang & Mu, Ren & Xiao, Han, 2025. "Who Gets Job Offers When Minimum Wages Rise? Evidence from China," IZA Discussion Papers 18290, IZA Network @ LISER.

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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