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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. Sengul, Gonul, 2017. "Learning about match quality: Information flows and labor market outcomes," Labour Economics, Elsevier, vol. 46(C), pages 118-130.
    3. 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.
    4. 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.
    5. 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.
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    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. 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.
    4. 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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