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High-Impact Minimum Wages and Heterogeneous Regions

  • Frings, Hanna
  • vom Berge, Philipp
  • Paloyo, Alfredo R.

We estimate the effects on wage and employment growth rates of the introduction and subsequent increases of the minimum wage in the main construction industry of Germany. Using a regional dataset constructed from individual employment histories, we exploit the spatial dimension and border discontinuities of the regional data to account for spillovers between districts and unobserved heterogeneity at the local level. The results indicate that the minimum wage increased the wage growth rate for East Germany but did not have a significant impact on the West German equivalent. The estimated effect on the employment growth rate revealed a contraction in the East of about 2.6 to 3.1 percentage points for a one-standard-deviation increase in the minimum-wage bite, amounting to roughly half of the overall decline in the growth rate, but no significant change was observed for the West.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79828.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79828
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  1. 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).
  2. Charlene M. Kalenkoski & Donald J. Lacombe, 2013. "Minimum wages and teen employment: A spatial panel approach," Papers in Regional Science, Wiley Blackwell, vol. 92(2), pages 407-417, 06.
  3. Thiess Büttner & Alexander Ebertz, 2009. "Spatial Implications of Minimum Wages," Ifo Working Paper Series Ifo Working Paper No. 66, Ifo Institute for Economic Research at the University of Munich.
  4. Joseph J. Sabia & Richard V. Burkhauser, 2010. "Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 592-623, January.
  5. David Neumark & J. M. Ian Salas & William Wascher, 2014. "Revisiting the Minimum Wage–Employment Debate: Throwing Out the Baby with the Bathwater?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 67(2.5), pages 608-648, May.
  6. Guimaraes, Paulo & Portugal, Pedro, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," IZA Discussion Papers 3935, Institute for the Study of Labor (IZA).
  7. Dube, Andrajit & Lester, T. William & Reich, Michael, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Institute for Research on Labor and Employment, Working Paper Series qt86w5m90m, Institute of Industrial Relations, UC Berkeley.
  8. 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).
  9. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael, 2010. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Institute for Research on Labor and Employment, Working Paper Series qt7jq2q3j8, Institute of Industrial Relations, UC Berkeley.
  10. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2008. "Fiscal Effects of Minimum Wages – An Analysis for Germany," Ruhr Economic Papers 0079, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  11. Machin, Stephen & Manning, Alan, 1997. "Minimum wages and economic outcomes in Europe," European Economic Review, Elsevier, vol. 41(3-5), pages 733-742, April.
  12. Whaples Robert, 2006. "Do Economists Agree on Anything? Yes!," The Economists' Voice, De Gruyter, vol. 3(9), pages 1-6, November.
  13. Paulo Guimarães & Pedro Portugal, 2010. "A simple feasible procedure to fit models with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 10(4), pages 628-649, December.
  14. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, June.
  15. Marion König & Joachim Möller, 2009. "Impacts of minimum wages: a microdata analysis for the German construction sector," International Journal of Manpower, Emerald Group Publishing, vol. 30(7), pages 716-741, November.
  16. William Brown, 2009. "The Process of Fixing the British National Minimum Wage, 1997-2007," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 429-443, 06.
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