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Minimum Wages as a Barrier to Entry – Evidence from Germany

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  • Bachmann, Ronald
  • Bauer, Thomas K.
  • Kröger, Hanna

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. & Kröger, Hanna, 2012. "Minimum Wages as a Barrier to Entry – Evidence from Germany," Ruhr Economic Papers 329, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:329
    DOI: 10.4419/86788378
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    Cited by:

    1. Mario Bossler & Hans-Dieter Gerner, 2020. "Employment Effects of the New German Minimum Wage: Evidence from Establishment-Level Microdata," ILR Review, Cornell University, ILR School, vol. 73(5), pages 1070-1094, October.
    2. Micheli, Martin, 2016. "Minimum wage: Redistributive or discriminatory policy?," VfS Annual Conference 2016 (Augsburg): Demographic Change 145830, Verein für Socialpolitik / German Economic Association.
    3. 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.
    4. Philipp Berge & Hanna Frings, 2020. "High-impact minimum wages and heterogeneous regions," Empirical Economics, Springer, vol. 59(2), pages 701-729, August.
    5. 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.
    6. repec:zbw:rwirep:0408 is not listed on IDEAS
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    8. Caliendo Marco & Wittbrodt Linda & Schröder Carsten, 2019. "The Causal Effects of the Minimum Wage Introduction in Germany – An Overview," German Economic Review, De Gruyter, vol. 20(3), pages 257-292, August.
    9. Hamid Beladi & Chen Cheng & May Hu & Yuan Yuan, 2020. "Unemployment governance, labour cost and earnings management: Evidence from China," The World Economy, Wiley Blackwell, vol. 43(10), pages 2526-2548, October.
    10. Bachmann, Ronald & Frings, Hanna, 2014. "Monopsony competition and the minimum wage: Evidence from Germany," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100367, Verein für Socialpolitik / German Economic Association.
    11. Bachmann, Ronald & König, Marion & Schaffner, Sandra, 2012. "Lost in Transition? Minimum Wage Effects on German Construction Workers," IZA Discussion Papers 6760, Institute of Labor Economics (IZA).
    12. Baek, Jisun & Lee, Changkeun & Park, WooRam, 2021. "The impact of the minimum wage on the characteristics of new establishments: Evidence from South Korea," Labour Economics, Elsevier, vol. 72(C).
    13. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2014. "Mehr Vertrauen in Marktprozesse. Jahresgutachten 2014/15 [More confidence in market processes. Annual Report 2014/15]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201415.
    14. 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.

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    More about this item

    Keywords

    Minimum wage; product market competition; service sector;
    All these keywords.

    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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