Minimum Wages as a Barrier to Entry: Evidence from Germany

27 Pages Posted: 21 Apr 2012

See all articles by Ronald Bachmann

Ronald Bachmann

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Thomas K. Bauer

Rhine-Westphalia Institute for Economic Research (RWI-Essen); University of Bochum - Faculty of Economics; IZA Institute of Labor Economics

Hanna Frings

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

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.

Keywords: minimum wage, product market competition, service sector

JEL Classification: J38, J50, L41, L80

Suggested Citation

Bachmann, Ronald and Bauer, Thomas K. and Frings, Hanna, Minimum Wages as a Barrier to Entry: Evidence from Germany. IZA Discussion Paper No. 6484. Available at SSRN: https://ssrn.com/abstract=2043486

Ronald Bachmann (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany

Thomas K. Bauer

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany
+49 201 8149 264 (Phone)
+49 201 8149 284 (Fax)

HOME PAGE: http://www.rwi-essen.de

University of Bochum - Faculty of Economics ( email )

Universitätsstraße 150
Gebäude GC, Ebene 3, Raum 58
D-44780 Bochum
Germany
+02 34 32 28341 (Phone)
+02 34 32 14273 (Fax)

HOME PAGE: http://www.ruhr-uni-bochum.de/empwifo/

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 38 94 529 (Phone)
+49 228 38 94 510 (Fax)

Hanna Frings

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany

HOME PAGE: http://www.rwi-essen.de/hanna-frings

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