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The Short-Term Distributional Effects of the German Minimum Wage Reform

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  • Caliendo, Marco

    () (University of Potsdam)

  • Fedorets, Alexandra

    () (DIW Berlin)

  • Preuß, Malte

    () (Freie Universität Berlin)

  • Schröder, Carsten

    () (DIW Berlin)

  • Wittbrodt, Linda

    () (University of Potsdam)

Abstract

This study quantifies the short-term distributional effects of the new statutory minimum wage in Germany. Using detailed survey data (German Socio-Economic Panel), we assess changes in the distributions of hourly wages, contractual and actual working hours, and monthly earnings. Our descriptive results indicate growth at the bottom of the hourly wage distribution in the post-reform year, but also considerable noncompliance among eligible employees. In a second step, we employ a difference-in-differences analysis and exploit regional variation in the "bite" of the intervention, measured by the share of employees in a geographical region with wages below the minimum wage prior to the reform. We document the reform's positive effect at the bottom of the wage distribution. However, we find a negative effect of the reform on contractual hours worked, which explains why there is no effect on monthly earnings. Given that actual hours worked decrease less than contractual hours, our evidence suggests an increase in unpaid overtime.

Suggested Citation

  • Caliendo, Marco & Fedorets, Alexandra & Preuß, Malte & Schröder, Carsten & Wittbrodt, Linda, 2017. "The Short-Term Distributional Effects of the German Minimum Wage Reform," IZA Discussion Papers 11246, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp11246
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    Cited by:

    1. Sebastian Link, 2019. "The Price and Employment Response of Firms to the Introduction of Minimum Wages," CESifo Working Paper Series 7575, CESifo.
    2. Marco Caliendo & Alexandra Fedorets & Malte Preuss & Carsten Schröder & Linda Wittbrodt, 2017. "The Short-Term Distributional Effects of the German Minimum Wage Reform," SOEPpapers on Multidisciplinary Panel Data Research 948, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Bonin Holger & Isphording Ingo E. & Krause-Pilatus Annabelle & Pestel Nico & Rinne Ulf & Lichter Andreas, 2020. "The German Statutory Minimum Wage and Its Effects on Regional Employment and Unemployment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(2-3), pages 295-319, April.
    4. Burauel, Patrick & Caliendo, Marco & Grabka, Markus M. & Obst, Cosima & Preuss, Malte & Schröder, Carsten & Shupe, Cortnie, 2020. "The Impact of the German Minimum Wage on Individual Wages and Monthly Earnings," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 201-231.
    5. Ahlfeldt, Gabriel M. & Roth, Duncan & Seidel, Tobias, 2018. "The regional effects of Germany’s national minimum wage," Economics Letters, Elsevier, vol. 172(C), pages 127-130.
    6. Alexandra Fedorets & Alexey Filatov & Cortnie Shupe, 2018. "Great Expectations: Reservation Wages and the Minimum Wage Reform," SOEPpapers on Multidisciplinary Panel Data Research 968, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. 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.
    8. Clemens, Jeffrey & Strain, Michael R., 2019. "Understanding "Wage Theft": Evasion and Avoidance Responses to Minimum Wage Increases," IZA Discussion Papers 12167, Institute of Labor Economics (IZA).
    9. Caliendo, Marco & Fedorets, Alexandra & Preuss, Malte & Schröder, Carsten & Wittbrodt, Linda, 2018. "The short-run employment effects of the German minimum wage reform," Labour Economics, Elsevier, vol. 53(C), pages 46-62.
    10. Bossler, Mario & Schank, Thorsten, 2020. "Wage Inequality in Germany after the Minimum Wage Introduction," IZA Discussion Papers 13003, Institute of Labor Economics (IZA).
    11. repec:iab:iabfob:201804 is not listed on IDEAS
    12. Bargain, Olivier & Doorley, Karina & Van Kerm, Philippe, 2018. "Minimum Wages and the Gender Gap in Pay: New Evidence from the UK and Ireland," IZA Discussion Papers 11502, Institute of Labor Economics (IZA).
    13. Redmond, Paul & Doorley, Karina & McGuinness, Seamus, 2019. "The impact of a change in the National Minimum Wage on the distribution of hourly wages and household income in Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS86.
    14. Filiz Gülal & Adam Ayaita, 2018. "The Impact of Minimum Wages on Well-Being: Evidence from a Quasi-Experiment in Germany," SOEPpapers on Multidisciplinary Panel Data Research 969, DIW Berlin, The German Socio-Economic Panel (SOEP).
    15. Grishina, E. & Kuznetsova, P., 2018. "Minimum Wage as a Tool to Reduce Poverty: Expected Consequences of the Reform," Journal of the New Economic Association, New Economic Association, vol. 40(4), pages 137-156.
    16. Howell, Anthony, 2020. "Minimum wage impacts on Han-minority Workers’ wage distribution and inequality in urban china," Journal of Urban Economics, Elsevier, vol. 115(C).
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    18. MarioBossler & JoachimMöller, 2019. "The Effects of the Compulsory Minimum Wage in Germany," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(04), pages 14-18, January.
    19. Teresa Backhaus & Kai-Uwe Müller, 2019. "Does the German Minimum Wage Help Low Income Households?: Evidence from Observed Outcomes and the Simulation of Potential Effects," Discussion Papers of DIW Berlin 1805, DIW Berlin, German Institute for Economic Research.
    20. Andreas Knabe & Ronnie Schöb & Marcel Thum & Bruttel,Oliver & Benjamin Börschlein & Bossler Mario & Felix Pakleppa & Holger Bonin & Nico Pestel & Alexandra Fedorets & Marco Caliendo, 2020. "Bilanz nach fünf Jahren: Was hat der gesetzliche Mindestlohn gebracht?“," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(04), pages 03-28, April.

    More about this item

    Keywords

    minimum wage; wage distribution; hourly wages; inequality;

    JEL classification:

    • 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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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