The Short-Term Distributional Effects of the German Minimum Wage Reform

48 Pages Posted: 8 Jan 2018

See all articles by Marco Caliendo

Marco Caliendo

University of Potsdam; Institute for the Study of Labor (IZA)

Alexandra Fedorets

German Institute for Economic Research (DIW Berlin)

Malte Preuss

Free University of Berlin (FUB)

Carsten Schroeder

German Institute for Economic Research (DIW Berlin)

Linda Wittbrodt

University of Potsdam

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Abstract

This study quantifies the short-term distributional effects of the new statutory minimum wage in Germany. Using detailed survey data (German Socio-Economic Panel), we assess changes in the distributions of hourly wages, contractual and actual working hours, and monthly earnings. Our descriptive results indicate growth at the bottom of the hourly wage distribution in the post-reform year, but also considerable noncompliance among eligible employees. In a second step, we employ a difference-in-differences analysis and exploit regional variation in the "bite" of the intervention, measured by the share of employees in a geographical region with wages below the minimum wage prior to the reform. We document the reform's positive effect at the bottom of the wage distribution. However, we find a negative effect of the reform on contractual hours worked, which explains why there is no effect on monthly earnings. Given that actual hours worked decrease less than contractual hours, our evidence suggests an increase in unpaid overtime.

Keywords: minimum wage, wage distribution, hourly wages, inequality

JEL Classification: J31, J38, J22

Suggested Citation

Caliendo, Marco and Fedorets, Alexandra and Preuss, Malte and Schroeder, Carsten and Wittbrodt, Linda, The Short-Term Distributional Effects of the German Minimum Wage Reform. IZA Discussion Paper No. 11246, Available at SSRN: https://ssrn.com/abstract=3097364

Marco Caliendo (Contact Author)

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany
+49(0)331/9773225 (Phone)
+49(0)331/9773210 (Fax)

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Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Alexandra Fedorets

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Malte Preuss

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

Carsten Schroeder

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Linda Wittbrodt

University of Potsdam

August-Bebel Strasse 89
Potsdam, 14482
Germany

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