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Impacts of minimum wages: a microdata analysis for the German construction sector

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  • Marion König
  • Joachim Möller

Abstract

Purpose - In 1997 minimum wages were introduced in the West and East German construction sector. The purpose of this paper is to analyze their impact on wage growth and employment retention probability of affected workers. Design/methodology/approach - Following a difference‐in‐differences approach the paper proposes a method to identify the effects of this quasi‐experiment despite the lack of information on working hours in the large panel microdata. The method determines the size of the treatment and control group by the maximum likelihood criterion. Findings - All results show positive wage growth effects of the minimum wage regulation in both parts of the country. When it comes to employment effects, the results clearly differ between the two parts of the country. The employment effects are negative for East Germany and positive for West Germany, although the latter are not always statistically significant. Research limitations/implications - Although there is a limit to the simple transferability of the results for the construction sector to other industries, the study provides some useful insights for this country concerning reactions to the minimum wage. This is the first paper analyzing the effect of minimum wages in Germany using microeconometric methods. Practical implications - As the minimum wage in the East German construction sector was much higher in relation to the median wage than in West Germany, a tentative conclusion of the different employment results might be that the trade‐off between increasing wages for low‐paid workers and the danger of job losses does not exist in this case if minimum wages are moderate. Originality/value - This paper provides valuable information on the impact of wage growth and employment retention probability in Germany.

Suggested Citation

  • Marion König & Joachim Möller, 2009. "Impacts of minimum wages: a microdata analysis for the German construction sector," International Journal of Manpower, Emerald Group Publishing Limited, vol. 30(7), pages 716-741, November.
    • Handle: RePEc:eme:ijmpps:v:30:y:2009:i:7:p:716-741
    DOI: 10.1108/01437720910997362
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    Citations

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    Cited by:

    1. Backhaus, Teresa & Müller, Kai-Uwe, 2019. "Does the German minimum wage benefit low income households?," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203585, Verein für Socialpolitik / German Economic Association.
    2. Mario Bossler & Hans-Dieter Gerner, 2020. "Employment Effects of the New German Minimum Wage: Evidence from Establishment-Level Microdata," ILR Review, Cornell University, ILR School, vol. 73(5), pages 1070-1094, October.
    3. Philipp Berge & Hanna Frings, 2020. "High-impact minimum wages and heterogeneous regions," Empirical Economics, Springer, vol. 59(2), pages 701-729, August.
    4. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2014. "The minimum wage from a two-sided perspective," Economics Letters, Elsevier, vol. 124(3), pages 389-391.
    5. 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.
    6. Arni, Patrick & Eichhorst, Werner & Pestel, Nico & Spermann, Alexander & Zimmermann, Klaus F., 2014. "Kein Mindestlohn ohne unabhängige wissenschaftliche Evaluation," IZA Standpunkte 65, Institute of Labor Economics (IZA).
    7. Bachmann, Ronald & König, Marion & Schaffner, Sandra, 2012. "Lost in Transition? Minimum Wage Effects on German Construction Workers," IZA Discussion Papers 6760, Institute of Labor Economics (IZA).
    8. Marco Caliendo & Alexandra Fedorets & Malte Preuss & Carsten Schröder & Linda Wittbrodt, 2023. "The short- and medium-term distributional effects of the German minimum wage reform," Empirical Economics, Springer, vol. 64(3), pages 1149-1175, March.
    9. Möller, Joachim & Bender, Stefan & König, Marion & vom Berge, Philipp & Umkehrer, Matthias & Wolter, Stefanie & Schaffner, Sandra & Bachmann, Ronald & Kröger, Hanna & Janßen-Timmen, Ronald & Paloyo, A, 2011. "Evaluation bestehender gesetzlicher Mindestlohnregelungen: Branche: Bauhauptgewerbe. Forschungsauftrag des Bundesministeriums für Arbeit und Soziales (BMAS). Endbericht," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 72591.
    10. Chung-Khain Wye & Elya Nabila Abdul Bahri, 2021. "How does employment respond to minimum wage adjustment in China?," The Economic and Labour Relations Review, , vol. 32(1), pages 90-114, March.
    11. Mario Bossler, 2017. "Employment expectations and uncertainties ahead of the new German minimum wage," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(4), pages 327-348, September.
    12. Carsten Schröder, 2014. "Kosten und Nutzen von Mindestlöhnen," DIW Roundup: Politik im Fokus 22, DIW Berlin, German Institute for Economic Research.
    13. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
    14. Demir, Gökay, 2023. "Labor Market Frictions and Spillover Effects from Publicly Announced Sectoral Minimum Wages," IZA Discussion Papers 16204, Institute of Labor Economics (IZA).
    15. Demir, Gökay, 2022. "Labor market frictions and spillover effects from publicly announced sectoral minimum wages," Ruhr Economic Papers 985, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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