IDEAS home Printed from https://ideas.repec.org/a/zbw/espost/225245.html
   My bibliography  Save this article

Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional

Author

Listed:
  • Braun, Helge
  • Döhrn, Roland
  • Krause, Michael
  • Micheli, Martin
  • Schmidt, Torsten

Abstract

This paper analyzes the introduction of the German minimum wage in 2015 in a structural model geared to quantitatively assess its long-run economic effects. We first employ a simple neoclassic model where wages equal theirmarginal product, then extend thismodel to two sector economy, and finally introduce search and matching frictions. Even though all model variants remain highly stylized, they yield quantitative insights on the importance of different mechanisms and channels through which minimum wages affect outcomes in the long run. In this framework, the minimum wage has a strong negative effect on employment. When sectors are differently affected by the minimum wage, sectoral relative price changes play an important quantitative role. Other labor market policies and institutions are important for the transmission of minimum wage policy on labor market market outcomes.

Suggested Citation

  • Braun, Helge & Döhrn, Roland & Krause, Michael & Micheli, Martin & Schmidt, Torsten, 2020. "Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 240(2-3), pages 351-386.
    • Handle: RePEc:zbw:espost:225245
    DOI: 10.1515/jbnst-2018-0080
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/225245/1/Macroeconomic-long-run-e%ef%ac%80ects-of-the-German-minimum-wage.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.1515/jbnst-2018-0080?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
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sylvia Allegretto & Arindrajit Dube & Michael Reich & Ben Zipperer, 2017. "Credible Research Designs for Minimum Wage Studies," ILR Review, Cornell University, ILR School, vol. 70(3), pages 559-592, May.
    2. Projektgruppe Gemeinschaftsdiagnose, 2014. "Deutsche Konjunktur im Aufschwung – aber Gegenwind von der Wirtschaftspolitik," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(03), pages 27-30, June.
    3. Garloff, Alfred, 2016. "Side effects of the new German minimum wage on (un-)employment : first evidence from regional data," IAB-Discussion Paper 201631, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. David Neumark & JM Salas & William Wascher, 2014. "More on recent evidence on the effects of minimum wages in the United States," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-26, December.
    5. Brown, Alessio & Merkl, Christian & Snower, Dennis, 2015. "An Incentive Theory Of Matching," Macroeconomic Dynamics, Cambridge University Press, vol. 19(3), pages 643-668, April.
    6. 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.
    7. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228, Elsevier.
    8. Balleer, Almut & Gehrke, Britta & Lechthaler, Wolfgang & Merkl, Christian, 2016. "Does short-time work save jobs? A business cycle analysis," European Economic Review, Elsevier, vol. 84(C), pages 99-122.
    9. Christopher Flinn & Ahu Gemici & Steven Laufer, 2017. "Search, Matching, and Training," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 260-297, April.
    10. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    11. Barry T. Hirsch & Bruce E. Kaufman & Tetyana Zelenska, 2015. "Minimum Wage Channels of Adjustment," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(2), pages 199-239, April.
    12. David Neumark, 2017. "The Employment Effects of Minimum Wages: Some Questions We Need to Answer," NBER Working Papers 23584, National Bureau of Economic Research, Inc.
    13. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, July.
    14. Krause, Michael U. & Uhlig, Harald, 2012. "Transitions in the German labor market: Structure and crisis," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 64-79.
    15. Philipp Berge & Hanna Frings, 2020. "High-impact minimum wages and heterogeneous regions," Empirical Economics, Springer, vol. 59(2), pages 701-729, August.
    16. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
    17. Joseph, G. & Pierrard, O. & Sneessens, H. R., 2004. "Job turnover, unemployment and labor market institutions," Labour Economics, Elsevier, vol. 11(4), pages 451-468, August.
    18. David A. Green & Kathryn Harrison, 2010. "Minimum wage setting and standards of fairness," IFS Working Papers W10/09, Institute for Fiscal Studies.
    19. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    20. 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.
    21. Gabriel Ahlfeldt & Duncan Roth & Tobias Seidel, 2018. "The Regional Effects of a National Minimum Wage," CESifo Working Paper Series 6924, CESifo.
    22. Ahlfeldt, Gabriel & Roth, Duncan & Seidel, Tobias, 2018. "The regional effects of Germany’s national minimum wage," CEPR Discussion Papers 13005, C.E.P.R. Discussion Papers.
    23. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
    24. Boris Hirsch & Thorsten Schank & Claus Schnabel, 2010. "Differences in Labor Supply to Monopsonistic Firms and the Gender Pay Gap: An Empirical Analysis Using Linked Employer-Employee Data from Germany," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 291-330, April.
    25. Ronald Bachmann & Hanna Frings, 2017. "Monopsonistic competition, low-wage labour markets, and minimum wages – An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 49(51), pages 5268-5286, November.
    26. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    27. Armin Falk & Ernst Fehr & Christian Zehnder, 2006. "Fairness Perceptions and Reservation Wages—the Behavioral Effects of Minimum Wage Laws," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1347-1381.
    28. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
    29. Arindrajit Dube & T. William Lester & Michael Reich, 2016. "Minimum Wage Shocks, Employment Flows, and Labor Market Frictions," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 663-704.
    30. David Neumark & J. M. Ian Salas & William Wascher, 2014. "Revisiting the Minimum Wage—Employment Debate: Throwing Out the Baby with the Bathwater?," ILR Review, Cornell University, ILR School, vol. 67(3_suppl), pages 608-648, May.
    31. Shanshan Liu & Thomas J. Hyclak & Krishna Regmi, 2016. "Impact of the Minimum Wage on Youth Labor Markets," LABOUR, CEIS, vol. 30(1), pages 18-37, March.
    32. Ahlfeldt, Gabriel M. & Roth, Duncan & Seidel, Tobias, 2018. "The regional effects of Germany’s national minimum wage," Economics Letters, Elsevier, vol. 172(C), pages 127-130.
    33. Marcus Dittrich & Andreas Knabe & Kristina Leipold, 2011. "Spillover Effects of Minimum Wages: Theory and Experimental Evidence," CESifo Working Paper Series 3576, CESifo.
    34. Schmitz, Sebastian, 2017. "The effects of Germany's new minimum wage on employment and welfare dependency," Discussion Papers 2017/21, Free University Berlin, School of Business & Economics.
    35. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    36. R. Kaj Gittings & Ian M. Schmutte, 2016. "Getting Handcuffs on an Octopus," ILR Review, Cornell University, ILR School, vol. 69(5), pages 1133-1170, October.
    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. Arne HEISE, 2020. "Comparing economic theories or: pluralism in economics and the need for a comparative approach to scientific research programmes," The Journal of Philosophical Economics, Bucharest Academy of Economic Studies, The Journal of Philosophical Economics, vol. 13(2), pages 162-184, November.
    2. Arne Heise, 2022. "Mindestlöhne, Beschäftigung und die „Harmonie der Täuschungen“," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 48(1), pages 83-107.
    3. 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).
    4. Arne Heise & Toralf Pusch, 2021. "Die „Harmonie der Täuschungen“ muss enden, damit Politikberatung glaubwürdiger wird," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(12), pages 940-942, December.

    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. Braun, Helge & Döhrn, Roland & Krause, Michael & Micheli, Martin & Schmidt, Torsten, 2020. "Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 351-386.
    2. Bossler, Mario & Gürtzgen, Nicole & Lochner, Benjamin & Betzl, Ute & Feist, Lisa & Wegmann, Jakob, 2018. "Auswirkungen des gesetzlichen Mindestlohns auf Betriebe und Unternehmen," IAB-Forschungsbericht 201804, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Link, Sebastian, 2024. "The price and employment response of firms to the introduction of minimum wages," Journal of Public Economics, Elsevier, vol. 239(C).
    4. Arindrajit Dube & Attila Lindner, 2024. "Minimum Wages in the 21st Century," RF Berlin - CReAM Discussion Paper Series 2425, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    5. Caliendo Marco & Wittbrodt Linda & Schröder Carsten, 2019. "The Causal Effects of the Minimum Wage Introduction in Germany – An Overview," German Economic Review, De Gruyter, vol. 20(3), pages 257-292, August.
    6. Pestel, Nico & Bonin, Holger & Isphording, Ingo E. & Gregory, Terry & Caliendo, Marco, 2020. "Auswirkungen des gesetzlichen Mindestlohns auf Beschäftigung und Arbeitslosigkeit," IZA Research Reports 95, Institute of Labor Economics (IZA).
    7. Mark Borgschulte & Heepyung Cho, 2020. "Minimum Wages and Retirement," ILR Review, Cornell University, ILR School, vol. 73(1), pages 153-177, January.
    8. Neumark David, 2019. "The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns," German Economic Review, De Gruyter, vol. 20(3), pages 293-329, August.
    9. David Neumark & Peter Shirley, 2022. "Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 61(4), pages 384-417, October.
    10. Emiel van Bezooijen & Wiljan van den Berge & Anna Salomons, 2024. "The Young Bunch: Youth Minimum Wages and Labor Market Outcomes," ILR Review, Cornell University, ILR School, vol. 77(3), pages 428-460, May.
    11. Bruttel, Oliver, 2019. "The effects of the new statutory minimum wage in Germany: a first assessment of the evidence," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 53(1), pages 1-10.
    12. Koch, Andreas & Kirchmann, Andrea & Reiner, Marcel & Scheu, Tobias & Zühlke, Anne & Bonin, Holger, 2020. "Verhaltensmuster von Betrieben und Beschäftigten im Kontext des gesetzlichen Mindestlohns," IZA Research Reports 97, Institute of Labor Economics (IZA).
    13. Micheli, Martin, 2019. "It is real: On the relation between minimum wages and labor market outcomes for teenagers," Ruhr Economic Papers 829, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. Shanshan Liu & Thomas J. Hyclak & Krishna Regmi, 2016. "Impact of the Minimum Wage on Youth Labor Markets," LABOUR, CEIS, vol. 30(1), pages 18-37, March.
    15. Fedorets, Alexandra & Shupe, Cortnie, 2021. "Great expectations: Reservation wages and minimum wage reform," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 397-419.
    16. Drechsel-Grau, Moritz, 2022. "Macroeconomic and Distributional Effects of Higher Minimum Wages," VfS Annual Conference 2022 (Basel): Big Data in Economics 264002, Verein für Socialpolitik / German Economic Association.
    17. Teresa Backhaus & Kai-Uwe Müller, 2019. "Does the German Minimum Wage Help Low Income Households?: Evidence from Observed Outcomes and the Simulation of Potential Effects," Discussion Papers of DIW Berlin 1805, DIW Berlin, German Institute for Economic Research.
    18. Wiljan van den Berge, 2021. "The Young Bunch: Youth Minimum Wages and Labor Market Outcomes," CPB Discussion Paper 422.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Mario Bossler & Sandra Broszeit, 2017. "Do minimum wages increase job satisfaction? Micro-data evidence from the new German minimum wage," LABOUR, CEIS, vol. 31(4), pages 480-493, December.
    20. Moritz Drechsel-Grau, 2023. "Employment and Reallocation Effects of Higher Minimum Wages," CESifo Working Paper Series 10412, CESifo.

    More about this item

    Keywords

    minimum wage; unemployment; Germany;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

    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:zbw:espost:225245. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zbwkide.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.