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Minimum Wages, Productivity, and Reallocation

Author

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  • Haelbig, Mirja

    (IWH Halle)

  • Mertens, Matthias

    (IWH Halle)

  • Müller, Steffen

    (IWH Halle)

Abstract

We study the productivity effect of the German national minimum wage by applying administrative firm data. At the firm level, we confirm positive effects on wages and negative employment effects and document higher productivity even net of output price increases. We find higher wages but no employment effects at the level of aggregate industry×region cells. The minimum wage increased aggregate productivity in manufacturing. We do not find that employment reallocation across firms contributed to these aggregate productivity gains, nor do we find improvements in allocative efficiency. Instead, the productivity gains from the minimum wage result from within-firm productivity improvements only.

Suggested Citation

  • Haelbig, Mirja & Mertens, Matthias & Müller, Steffen, 2023. "Minimum Wages, Productivity, and Reallocation," IZA Discussion Papers 16160, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16160
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    References listed on IDEAS

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    1. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    2. Jeffrey Clemens, 2021. "How Do Firms Respond to Minimum Wage Increases? Understanding the Relevance of Non-employment Margins," Journal of Economic Perspectives, American Economic Association, vol. 35(1), pages 51-72, Winter.
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    More about this item

    Keywords

    minimum wage; firm productivity; output prices; factor reallocation;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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