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Minimum wages and competition: The case of the German roofing sector

Author

Listed:
  • Kraft, Kornelius
  • Rammer,Christian
  • Gottschalk, Sandra

Abstract

This paper analyses the effects of minimum wages on competition in the German roofing sector. The case is particularly interesting since this sector is faced with a uniform minimum wage despite significant regional disparities in productivity and wages. As a control industry we take the plumbing sector, which shows a similar market structure and demand trend but is not subject to a minimum wage. Employing a comprehensive firm panel data and using a difference-in-difference approach, we estimate the impacts of minimum wages on market entries and exits and firms' profitability. We find significant effects for East Germany which point to a substantial shift in industry structure. Minimum wages decreased both market entries and exits for roofing firms while they increased entries of sole traders. A decreasing number of non-sole traders lowered competition for this group of firms and helped them to increase profitability. The increasing share of sole traders may indicate some type of evasion strategy in eastern Germany, particularly since wages for skilled roofers declined towards the minimum wage. In the western part of the country minimum wages had no impact on competition.

Suggested Citation

  • Kraft, Kornelius & Rammer,Christian & Gottschalk, Sandra, 2012. "Minimum wages and competition: The case of the German roofing sector," ZEW Discussion Papers 12-083, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:12083
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Thomas Werner & Friedrich L. Sell, 2015. "Price Effects of the Minimum Wage: A Survey Data Analysis for the German Construction Sector," LABOUR, CEIS, vol. 29(3), pages 310-326, September.
    2. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516, April.
    3. Werner, Thomas & Sell, Friedrich L. & Reinisch, David C., 2013. "Price effects of minimum wages: Evidence from the construction sector in East and West Germany," Working Papers in Economics 2013,4, Bundeswehr University Munich, Economic Research Group.

    More about this item

    Keywords

    Minimum Wage; Competition; Firm Performance; Labour Market Policy; Evasion Strategy; Sole Traders;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction

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