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Monopsonistic Competition, Low-Wage Labour Markets, and Minimum Wages: An Empirical Analysis

Author

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  • Bachmann, Ronald

    () (RWI)

  • Frings, Hanna

    () (RWI)

Abstract

This paper investigates the degree of monopsony power of employers in different industries against the background of a statutory minimum wage introduction in Germany in January 2015. A semi-structural estimation approach is employed based on a dynamic model of monopsonistic competition. The empirical analysis relies on a linked employer-employee data set which allows to control for heterogeneity both on the worker and on the firm side. The results show important differences in monopsonistic competition among low-wage industries: While retailing, the hotel and restaurant industry as well as agriculture can be described as monopsonistic labour markets, this is not true for other services and manufacturing of food products. From a policy point of view, the introduction of a uniform minimum wage may therefore lead to different employment reactions in industries with a similar minimum wage bite.

Suggested Citation

  • Bachmann, Ronald & Frings, Hanna, 2016. "Monopsonistic Competition, Low-Wage Labour Markets, and Minimum Wages: An Empirical Analysis," IZA Discussion Papers 9962, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp9962
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    1. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2011. "Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects," IZA Discussion Papers 5811, Institute for the Study of Labor (IZA).
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    1. repec:zbw:rwipro:180217 is not listed on IDEAS
    2. Gürtzgen, Nicole & Blömer, Maximilian & Pohlan, Laura & Stichnoth, Holger & van den Berg, Gerard, 2016. "Estimating an Equilibrium Job Search Model for the German Labour Market," Annual Conference 2016 (Augsburg): Demographic Change 145950, Verein für Socialpolitik / German Economic Association.
    3. Douglas A. Webber, 2018. "Employment Adjustment Over the Business Cycle: The Impact of Competition in the Labor Market," DETU Working Papers 1806, Department of Economics, Temple University.
    4. repec:esr:resser:bkmnext354 is not listed on IDEAS
    5. McGuinness, Seamus & Redmond, Paul, 2018. "Estimating the effect of an increase in the minimum wage on hours worked and employment in Ireland," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT354.
    6. repec:spr:izalbr:v:6:y:2017:i:1:d:10.1186_s40172-017-0058-z is not listed on IDEAS

    More about this item

    Keywords

    labor-supply elasticities; low-wage industries; minimum wage; monopsony; Germany;

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • 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

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