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Minimum Wages as a Barrier to Entry: Evidence from GermanyRonald BachmannRhine-Westphalia Institute for Economic Research (RWI-Essen) Thomas K. BauerRhine-Westphalia Institute for Economic Research (RWI-Essen); University of Bochum - Faculty of Economics; Institute for the Study of Labor (IZA) Hanna FringsRhine-Westphalia Institute for Economic Research (RWI-Essen) IZA Discussion Paper No. 6484 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 favour of minimum wages if union coverage is low and the mark-up of union wage rates is high.
Number of Pages in PDF File: 27 Keywords: minimum wage, product market competition, service sector JEL Classification: J38, J50, L41, L80 working papers seriesDate posted: April 21, 2012Suggested CitationContact Information
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