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When the minimum wage really bites hard: Impact on top earners and skill supply

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  • Gregory, Terry
  • Zierahn, Ulrich

Abstract

We investigate minimum wage spillovers by exploiting the first-time introduction of a minimum wage within a quasi-experiment in a context with an extraordinary large bite: the German roofing industry. We find positive wage spillovers for medium-skilled workers with wages just above the minimum wage, but negative effects for high-skilled top earners in East Germany, where the bite was particularly pronounced. There, the minimum wage lowered both returns to skills and skill supply. We propose a theoretical model according to which negative spillovers occur whenever a negative scale effect dominates a positive substitution effect and provide empirical support for our theory.

Suggested Citation

  • Gregory, Terry & Zierahn, Ulrich, 2020. "When the minimum wage really bites hard: Impact on top earners and skill supply," ZEW Discussion Papers 20-042, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:20042
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    More about this item

    Keywords

    minimum wages; wage effects; spillover effects; wage restraints; returns to skills; unconditional quantile regression; scale effect; substitution effect; skill supply;
    All these keywords.

    JEL classification:

    • 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
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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