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The Effects of Minimum Wages in the German Construction Sector - Reconsidering the Evidence

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  • Möller, Joachim
  • König, Marion

Abstract

We use a 100% sample of social security panel micro data for estimating the effects of a minimum wage in the German construction sector. In 1997, a wage floor was introduced at different rates in West and East Germany. For analysing the impact of this natural experiment we conceptually follow a difference-in-differences approach. Since there is only qualitative information on working hours in the data, we propose a probabilistic method for identifying the treatment and control group. The effect of the minimum wage is investigated for wage growth and employment, the latter both from a labor demand and a labor supply perspective. According to our results, there are signi cant positive effects of the minimum wage on wage growth in both parts of the country. Although being lower in absolute terms, the bite of the minimum wage, however, is markedly higher in the East. The employment effects of the wage floor turn out to be different in both parts of the country. The minimum wage effect on the employment retention probability is negative and statistically highly significant in the East and positive, but statistically not significant in the West. When it comes to the inflow of workers into the sector we find a positive and statistically significant effect of the minimum wage in East Germany, but an insignifcant effect for West Germany. The highly differentiated results for the two parts of the country point to nonlinearities in the impact of a minimum wage. Rather than supporting clear-cut effects as in the pure neoclassical approach, our analysis tends to corroborate the relevance of market imperfections like the existence of monopsony power in the market.

Suggested Citation

  • Möller, Joachim & König, Marion, 2012. "The Effects of Minimum Wages in the German Construction Sector - Reconsidering the Evidence," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62064, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc12:62064
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    Cited by:

    1. Alan Manning, 2013. "Minimum Wages: A View from the UK," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 14(1-2), pages 57-66, February.

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    More about this item

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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