IDEAS home Printed from https://ideas.repec.org/a/aea/aejpol/v14y2022i2p91-124.html
   My bibliography  Save this article

Raising the Bar: Minimum Wages and Employers' Hiring Standards

Author

Listed:
  • 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.

Suggested Citation

  • 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
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/pol.20190534
    Download Restriction: no
    File URL: https://doi.org/10.3886/E141801V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/pol.20190534.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/pol.20190534.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/pol.20190534?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paul Redmond & Seamus McGuinness, 2025. "The impact of a minimum wage increase on hours worked: heterogeneous effects by gender and sector," Economica, London School of Economics and Political Science, vol. 92(365), pages 84-106, January.
    2. Link, Sebastian, 2024. "The price and employment response of firms to the introduction of minimum wages," Journal of Public Economics, Elsevier, vol. 239(C).
    3. Lochner Benjamin & Wolter Stefanie & Seth Stefan, 2024. "AKM Effects for German Labour Market Data from 1985 to 2021," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 244(4), pages 425-431.
    4. 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.
    5. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arindrajit Dube & Attila S. Lindner, 2024. "Minimum Wages in the 21st Century," NBER Working Papers 32878, National Bureau of Economic Research, Inc.
    2. Mario Bossler & Ying Liang & Thorsten Schank, 2024. "The Devil is in the Details: Heterogeneous Effects of the German Minimum Wage on Working Hours and Minijobs," Papers 2403.17206, arXiv.org, revised May 2024.
    3. Francesco Devicienti & Bernardo Fanfani, 2025. "Firms' margins of adjustment to wage growth: the case of Italian collective bargaining," Economica, London School of Economics and Political Science, vol. 92(365), pages 107-149, January.
    4. Arabzadeh, Hamzeh & Balleer, Almut & Gehrke, Britta & Taskin, Ahmet Ali, 2024. "Minimum wages, wage dispersion and financial constraints in firms," European Economic Review, Elsevier, vol. 163(C).
    5. Bas Scheer & Wiljan van den Berge & Maarten Goos & Alan Manning & Anna Salomons, 2022. "Alternative Work Arrangements and Worker Outcomes: Evidence from Payrolling," CPB Discussion Paper 435, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Gavoille, Nicolas & Zasova, Anna, 2023. "What we pay in the shadows: Labor tax evasion, minimum wage hike and employment," Journal of Public Economics, Elsevier, vol. 228(C).
    7. Kunaschk, Max, 2024. "The effects of minimum wages on employment and prices—Evidence from the hairdressing sector," Labour Economics, Elsevier, vol. 88(C).
    8. Adamopoulou, Effrosyni & Manaresi, Francesco & Rachedi, Omar & Yurdagul, Emircan, 2021. "Minimum Wages and Insurance within the Firm," IZA Discussion Papers 14943, Institute of Labor Economics (IZA).
    9. Bíró, Anikó & Prinz, Dániel & Sándor, László, 2022. "The minimum wage, informal pay, and tax enforcement," Journal of Public Economics, Elsevier, vol. 215(C).
    10. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Across-Country Wage Compression in Multinationals," NBER Working Papers 26788, National Bureau of Economic Research, Inc.
    11. Link, Sebastian, 2024. "The price and employment response of firms to the introduction of minimum wages," Journal of Public Economics, Elsevier, vol. 239(C).
    12. Doruk Cengiz & Arindrajit Dube & Attila S. Lindner & David Zentler-Munro, 2021. "Seeing Beyond the Trees: Using Machine Learning to Estimate the Impact of Minimum Wages on Labor Market Outcomes," NBER Working Papers 28399, National Bureau of Economic Research, Inc.
    13. Moritz Drechsel‐Grau & Andreas Peichl & Kai D. Schmid & Johannes F. Schmieder & Hannes Walz & Stefanie Wolter, 2022. "Inequality and income dynamics in Germany," Quantitative Economics, Econometric Society, vol. 13(4), pages 1593-1635, November.
    14. Alan Manning, 2021. "Monopsony in Labor Markets: A Review," ILR Review, Cornell University, ILR School, vol. 74(1), pages 3-26, January.
    15. Sebastian Butschek & Jan Sauermann, 2024. "The Effect of Employment Protection on Firms’ Worker Selection," Journal of Human Resources, University of Wisconsin Press, vol. 59(6), pages 1981-2020.
    16. Nikhil Datta & Stephen Machin, 2024. "Government contracting and living wages > minimum wages," CEP Discussion Papers dp2000, Centre for Economic Performance, LSE.
    17. Wursten, Jesse & Reich, Michael, 2023. "Racial inequality in frictional labor markets: Evidence from minimum wages," Labour Economics, Elsevier, vol. 82(C).
    18. Kerstin Bruckmeier & Andreas Peichl & Martin Popp & Jürgen Wiemers & Timo Wollmershäuser, 2021. "Distributional effects of macroeconomic shocks in real-time," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(3), pages 459-487, September.
    19. Peter Hull & Michal Kolesár & Christopher Walters, 2022. "Labor by design: contributions of David Card, Joshua Angrist, and Guido Imbens," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(3), pages 603-645, July.
    20. Blömer, Maximilian J. & Guertzgen, Nicole & Pohlan, Laura & Stichnoth, Holger & van den Berg, Gerard J., 2024. "Unemployment effects of the German minimum wage in an equilibrium job search model," Labour Economics, Elsevier, vol. 91(C).

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejpol:v:14:y:2022:i:2:p:91-124. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.