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Raising the Bar: Minimum Wages and Employers' Hiring Standards

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  • Sebastian Butschek

Abstract

Many scholars have studied the employment effects of minimum wages, but little is known about effects on the composition of hires. I investigate whether Germany's minimum wage introduction raised hiring standards, using worker fixed effects as a proxy for worker productivity. For the least productive workers hired, the minimum wage led to a 4 percentile point shift in the productivity distribution. This increase is missed using standard observable measures of worker productivity. The effects are larger with greater pre-reform screening intensity—indicating an employer response. This more selective hiring compensates about two-thirds of higher wage costs for the least productive hires.

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  • Sebastian Butschek, 2022. "Raising the Bar: Minimum Wages and Employers' Hiring Standards," American Economic Journal: Economic Policy, American Economic Association, vol. 14(2), pages 91-124, May.
    • Handle: RePEc:aea:aejpol:v:14:y:2022:i:2:p:91-124
    DOI: 10.1257/pol.20190534
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    References listed on IDEAS

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    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    2. Christian Dustmann & Attila Lindner & Uta Schönberg & Matthias Umkehrer & Philipp vom Berge, 2022. "Reallocation Effects of the Minimum Wage," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 267-328.
    3. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2019. "The Effect of Minimum Wages on Low-Wage Jobs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1405-1454.
    4. Michael Pries & Richard Rogerson, 2005. "Hiring Policies, Labor Market Institutions, and Labor Market Flows," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 811-839, August.
    5. Sengul, Gonul, 2017. "Learning about match quality: Information flows and labor market outcomes," Labour Economics, Elsevier, vol. 46(C), pages 118-130.
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    Cited by:

    1. Nicolás Francisco Abbate & Bruno Jimnez, 2022. "Do Minimum Wage Hikes Lead to Employment Destruction? Evidence from a Regression Discontinuity Design in Argentina," Asociación Argentina de Economía Política: Working Papers 4533, Asociación Argentina de Economía Política.
    2. Sebastian Link, 2019. "The Price and Employment Response of Firms to the Introduction of Minimum Wages," CESifo Working Paper Series 7575, CESifo.
    3. Carolin Linckh & Samuel Muehlemann & Harald Pfeifer, 2024. "Beggars cannot be choosers: The effect of labor market tightness on hiring standards, wages, and hiring costs," Economics of Education Working Paper Series 0217, University of Zurich, Department of Business Administration (IBW).

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • 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
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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