The Effect of Minimum Wages on Labour Market Flows – Evidence from Germany

36 Pages Posted: 7 Mar 2016

See all articles by Ronald Bachmann

Ronald Bachmann

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

Marion Penninger

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Sandra Schaffner

RWI - Leibniz Institute for Economic Research

Date Written: December 15, 2015

Abstract

Using a linked employer-employee data set on the German construction industry, we analyse the effects of the introduction of minimum wages in this sector on labour market dynamics at the establishment level, i.e. turnover and churning flows, as well as accessions and separations and their underlying worker flows. The fact that minimum wages in Germany are sector-specic enables us to apply a between approach using other industries as control groups in a difference-in-differences framework. Furthermore, we use a within approach with high-wage workers as control group. While the within approach shows that the minimum wage reduced worker flows in East Germany, the between approach yields positive effect on labour market dynamics in West Germany. Our results can be explained by differences between East and West Germany with respect to the bite of the minimum wage, as well as the much higher prevalence of posted workers in West Germany. Furthermore, spillover effects to highwage workers are likely to have played a role in East Germany.

Keywords: Minimum wage; labour market flows; difference-in-difference; linked employer-employee

JEL Classification: J23, J38, J42, J63

Suggested Citation

Bachmann, Ronald and Penninger, Marion and Schaffner, Sandra, The Effect of Minimum Wages on Labour Market Flows – Evidence from Germany (December 15, 2015). Available at SSRN: https://ssrn.com/abstract=2721693 or http://dx.doi.org/10.2139/ssrn.2721693

Ronald Bachmann (Contact Author)

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

Hohenzollernstr. 1-3
Essen, 45128
Germany

Marion Penninger

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Sandra Schaffner

RWI - Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany

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

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