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Great Expectations: Reservation Wages and the Minimum Wage Reform

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  • Alexandra Fedorets
  • Alexey Filatov
  • Cortnie Shupe

Abstract

We use the German Socio-Economic Panel to show that introducing a high-impact statutory minimum wage causes an increase in reservation wages of approximately 4 percent at the low end of the distribution. The shifts in reservation wages and observed wages due to the minimum wage reform are comparable in their magnitude. Additional results show that German citizens adjust their reservation wages more than immigrants. Moreover, suggestive evidence points to a compensation mechanism in which immigrants trade wage growth against job security.

Suggested Citation

  • Alexandra Fedorets & Alexey Filatov & Cortnie Shupe, 2018. "Great Expectations: Reservation Wages and the Minimum Wage Reform," SOEPpapers on Multidisciplinary Panel Data Research 968, DIW Berlin, The German Socio-Economic Panel (SOEP).
    • Handle: RePEc:diw:diwsop:diw_sp968
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    Cited by:

    1. Panos Sousounis & Gauthier Lanot, 2022. "Minimum Wage Effects on Reservation Wages," Journal of Labor Research, Springer, vol. 43(3), pages 415-439, December.
    2. Gabriel M. Ahlfeldt & Duncan Roth & Tobias Seidel, 2022. "Optimal minimum wages," CEP Discussion Papers dp1823, Centre for Economic Performance, LSE.
    3. 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.
    4. Alexandra Fedorets, 2021. "12 Euro Mindestlohn: neue Erwartungen und alte Hürden," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(12), pages 929-932, December.
    5. Urs Fischbacher & Levent Neyse & David Richter & Carsten Schröder, 2024. "Adding household surveys to the behavioral economics toolbox: insights from the SOEP innovation sample," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 10(1), pages 136-151, June.
    6. Schröder Carsten & König Johannes & Fedorets Alexandra & Goebel Jan & Grabka Markus M. & Lüthen Holger & Metzing Maria & Schikora Felicitas & Liebig Stefan, 2020. "The economic research potentials of the German Socio-Economic Panel study," German Economic Review, De Gruyter, vol. 21(3), pages 335-371, September.

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    More about this item

    Keywords

    Minimum wage; reservation wage; labor supply;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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