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The Price and Employment Response of Firms to the Introduction of Minimum Wages

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  • Sebastian Link

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Abstract

This paper studies the price and employment response of firms to the introduction of a nation-wide minimum wage in Germany. In line with previous studies, the estimated employment effect is only modestly negative and statistically insignificant. In contrast, affected firms increased prices much more frequently. The price effect is prevalent across different sectors of the economy including manufacturing and is thus not limited to low wage industries. I document that speed and degree of price pass-through were high and firms rolled over the lion’s share of the costs generated by the minimum wage to their customers. Consistent with the role of price pass-through, I find considerable heterogeneity in firms’ responses to the minimum wage depending on their own business expectations, product market competition, and local labor market conditions.

Suggested Citation

  • Sebastian Link, 2019. "The Price and Employment Response of Firms to the Introduction of Minimum Wages," CESifo Working Paper Series 7575, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7575
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    Cited by:

    1. Sebastian Link, 2018. "Harmonization and Interpretation of the ifo Business Survey's Micro Data," CESifo Working Paper Series 7427, CESifo Group Munich.
    2. repec:ces:ifodic:v:16:y:2019:i:04:p:14-18 is not listed on IDEAS
    3. Bossler, Mario & Gürtzgen, Nicole & Lochner, Benjamin & Betzl, Ute & Feist, Lisa, 2018. "The German minimum wage: Effects on business expectations, profitability, and investments," FAU Discussion Papers in Economics 13/2018, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    4. repec:bla:germec:v:20:y:2019:i:3:p:257-292 is not listed on IDEAS
    5. Marco Caliendo & Carsten Schröder & Linda Wittbrodt, 2019. "The Causal Effects of the Minimum Wage Introduction in Germany – An Overview," German Economic Review, Verein für Socialpolitik, vol. 20(3), pages 257-292, August.

    More about this item

    Keywords

    price pass-through; heterogeneity in minimum wage effects; firm data; Germany;

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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