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Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional

Author

Listed:
  • Braun Helge

    (RGS Econ and RWI – Leibniz-Institute for Economic Research, Hohenzollernstr. 1-3, 45128Essen, Germany)

  • Döhrn Roland

    (RWI – Leibniz-Institute for Economic Research, Hohenzollernstr. 1-3, 45128Essen, Germany)

  • Krause Michael

    (University of Cologne, Center for Macroeconomic Research (CMR), Albertus-Magnus-Platz, 50923Cologne, Germany)

  • Micheli Martin

    (RWI – Leibniz-Institute for Economic Research, Hohenzollernstr. 1-3, 45128Essen, Germany)

  • Schmidt Torsten

    (RWI – Leibniz-Institut for Economic Research, Hohenzollernstr. 1-3, 45128Essen, Germany)

Abstract

This paper analyzes the introduction of the German minimum wage in 2015 in a structural model geared to quantitatively assess its long-run economic effects. We first employ a simple neoclassic model where wages equal their marginal product, then extend this model to two sector economy, and finally introduce search and matching frictions. Even though all model variants remain highly stylized, they yield quantitative insights on the importance of different mechanisms and channels through which minimum wages affect outcomes in the long run. In this framework, the minimum wage has a strong negative effect on employment. When sectors are differently affected by the minimum wage, sectoral relative price changes play an important quantitative role. Other labor market policies and institutions are important for the transmission of minimum wage policy on labor market market outcomes.

Suggested Citation

  • Braun Helge & Döhrn Roland & Krause Michael & Micheli Martin & Schmidt Torsten, 2020. "Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(2-3), pages 351-386, April.
    • Handle: RePEc:jns:jbstat:v:240:y:2020:i:2-3:p:351-386:n:2
    DOI: 10.1515/jbnst-2018-0080
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    More about this item

    Keywords

    minimum wage; unemployment; Germany;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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