Impacts of minimum wages: a microdata analysis for the German construction sector
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.
Keywords
Citation
König, M. and Möller, J. (2009), "Impacts of minimum wages: a microdata analysis for the German construction sector", International Journal of Manpower, Vol. 30 No. 7, pp. 716-741. https://doi.org/10.1108/01437720910997362
Publisher
:Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited