Minimum Wages as a Barrier to Entry – Evidence from Germany

Abstract:     
This study analyses employers' support for the introduction of industry-specific minimum wages as a cost-raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we find some evidence that high-productivity employers support minimum wages. We further show that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low-wage competition from Central and Eastern European countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favor of minimum wages if union coverage is low and the mark-up of union wage rates is high.

Number of Pages in PDF File: 29

Keywords: minimum wage, product market competition, service sector

JEL Classification: J38, J50, L41, L80

working papers series