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Minimum Wages as a Barrier to Entry: Evidence from Germany

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  • Bachmann, Ronald

    () (RWI)

  • Bauer, Thomas K.

    () (RWI)

  • Kroeger, Hanna

    () (RWI)

Abstract

This study analyses employers' support for the introduction of industry-specific minimum wages as a cost-raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we find some evidence that high-productivity employers support minimum wages. We further show that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low-wage competition from Central and Eastern European Countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favour of minimum wages if union coverage is low and the mark-up of union wage rates is high.

Suggested Citation

  • Bachmann, Ronald & Bauer, Thomas K. & Kroeger, Hanna, 2012. "Minimum Wages as a Barrier to Entry: Evidence from Germany," IZA Discussion Papers 6484, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6484
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    References listed on IDEAS

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    1. Braun, Sebastian, 2011. "Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model," Labour Economics, Elsevier, vol. 18(1), pages 120-129, January.
    2. Antonczyk, Dirk & Fitzenberger, Bernd & Sommerfeld, Katrin, 2010. "Rising wage inequality, the decline of collective bargaining, and the gender wage gap," Labour Economics, Elsevier, vol. 17(5), pages 835-847, October.
    3. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, January.
    4. Saint-Paul, Gilles, 2007. "Making sense of Bolkestein-bashing: Trade liberalization under segmented labor markets," Journal of International Economics, Elsevier, vol. 73(1), pages 152-174, September.
    5. Thomas Kiessl & Carsten Pohl & Heinz Schmalholz, 2006. "Ostdeutsche Unternehmen betrachten EU-Dienstleistungsrichtlinie mit Skepsis," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(01), pages 15-26, 02.
    6. Haucap, Justus & Pauly, Uwe & Wey, Christian, 2001. "Collective wage setting when wages are generally binding An antitrust perspective," International Review of Law and Economics, Elsevier, vol. 21(3), pages 287-307, September.
    7. Garnsey, Elizabeth, 1998. "A Theory of the Early Growth of the Firm," Industrial and Corporate Change, Oxford University Press, vol. 7(3), pages 523-556, September.
    8. Gernot Nerb, 2006. "Mögliche Auswirkungen der geplanten EU-Dienstleistungsrichtlinie auf die Wirtschaft Deutschlands," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 59(05), pages 19-24, March.
    9. Sven Heitzler & Christian Wey, 2010. "Raising Rivals' Fixed (Labor) Costs: The Deutsche Post Case," Discussion Papers of DIW Berlin 1008, DIW Berlin, German Institute for Economic Research.
    10. Shingo Ishiguro & Laixun Zhao, 2009. "Raising Wages To Deter Entry Into Unionized Markets," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 435-445.
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    Cited by:

    1. repec:zbw:rwirep:0358 is not listed on IDEAS
    2. Bachmann, Ronald & Frings, Hanna, 2014. "Monopsony competition and the minimum wage: Evidence from Germany," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100367, Verein für Socialpolitik / German Economic Association.
    3. Bossler, Mario & Gerner, Hans-Dieter, 2016. "Employment effects of the new German minimum wage : evidence from establishment-level micro data," IAB Discussion Paper 201610, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Philipp vom Berge & Hanna Frings & Alfredo R. Paloyo, 2013. "High-Impact Minimum Wages and Heterogeneous Regions," Ruhr Economic Papers 0408, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Bachmann, Ronald & König, Marion & Schaffner, Sandra, 2012. "Lost in Transition? Minimum Wage Effects on German Construction Workers," IZA Discussion Papers 6760, Institute for the Study of Labor (IZA).
    6. Micheli, Martin, 2016. "Minimum wage: Redistributive or discriminatory policy?," Annual Conference 2016 (Augsburg): Demographic Change 145830, Verein für Socialpolitik / German Economic Association.
    7. vom Berge, Philipp & Frings, Hanna & Paloyo, Alfredo R., 2013. "High-Impact Minimum Wages and Heterogeneous Regions," Ruhr Economic Papers 408, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Bachmann, Ronald & Penninger, Marion & Schaffner, Sandra, 2015. "The effect of minimum wages on labour market flows: Evidence from Germany," Ruhr Economic Papers 598, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    9. Bossler, Mario & Gerner, Hans-Dieter, 2016. "Employment effects of the new German minimum wage: Evidence from establishment-level micro data," Annual Conference 2016 (Augsburg): Demographic Change 145926, Verein für Socialpolitik / German Economic Association.
    10. repec:zbw:rwirep:0408 is not listed on IDEAS
    11. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2014. "Mehr Vertrauen in Marktprozesse. Jahresgutachten 2014/15," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201415.
    12. Ronald Bachmann & Marion König & Sandra Schaffner, 2012. "Lost in Transition? – Minimum Wage Effects on German Construction Workers," Ruhr Economic Papers 0358, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    More about this item

    Keywords

    service sector; product market competition; minimum wage;

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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