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The effect of minimum wages on labour market flows: Evidence from Germany

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  • Bachmann, Ronald
  • Penninger, Marion
  • Schaffner, Sandra

Abstract

Using a linked employer-employee data set on the German construction industry, we analyse the effects of the introduction of minimum wages in this sector on labour market dynamics at the establishment level, i.e. turnover and churning flows, as well as accessions and separations and their underlying worker flows. The fact that minimum wages in Germany are sector-specific enables us to apply a between approach using other industries as control groups in a difference-in-differences framework. Furthermore, we use a within approach with high-wage workers as control group. While the within approach shows that the minimum wage reduced worker flows in East Germany, the between approach yields positive effect on labour market dynamics in West Germany. Our results can be explained by differences between East and West Germany with respect to the bite of the minimum wage, as well as the much higher prevalence of posted workers in West Germany. Furthermore, spillover effects to highwage workers are likely to have played a role in East Germany.

Suggested Citation

  • 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.
  • Handle: RePEc:zbw:rwirep:598
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    References listed on IDEAS

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    1. Arindrajit Dube & T. William Lester & Michael Reich, 2016. "Minimum Wage Shocks, Employment Flows, and Labor Market Frictions," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 663-704.
    2. Bodo Aretz & Melanie Arntz & Terry Gregory, 2013. "The Minimum Wage Affects Them All: Evidence on Employment Spillovers in the Roofing Sector," German Economic Review, Verein für Socialpolitik, vol. 14(3), pages 282-315, August.
    3. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
    4. Hanna Frings, 2013. "The Employment Effect of Industry-Specific, Collectively Bargained Minimum Wages," German Economic Review, Verein für Socialpolitik, vol. 14(3), pages 258-281, August.
    5. 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.
    6. Pia Rattenhuber, 2014. "Building the minimum wage: the distributional impact of Germany’s first sectoral minimum wage on wages and hours across different wage bargaining regimes," Empirical Economics, Springer, vol. 46(4), pages 1429-1446, June.
    7. repec:spr:inrvec:v:45:y:2012:i:3:p:257-277 is not listed on IDEAS
    8. Ronald Bachmann & Thomas K. Bauer & Hanna Frings, 2014. "Minimum Wages as a Barrier to Entry: Evidence from Germany," LABOUR, CEIS, vol. 28(3), pages 338-357, September.
    9. repec:zbw:rwirep:0408 is not listed on IDEAS
    10. Apel, Helmut & Bachmann, Ronald & Bender, Stefan & Vom Berge, Philipp & Fertig, Michael & Frings, Hanna & König, Marion & Möller, Joachim & Paloyo, Alfredo R. & Schaffner, Sandra & Tamm, Marcus & Umke, 2012. "Arbeitsmarktwirkungen der Mindestlohneinführung im Bauhauptgewerbe," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 257-277.
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    Cited by:

    1. 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.
    2. 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.
    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].

    More about this item

    Keywords

    minimum wage; labour market flows; difference-in-difference; linked employer-employee;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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