When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply

58 Pages Posted: 31 Aug 2020

See all articles by Terry Gregory

Terry Gregory

IZA Institute of Labor Economics; ZEW – Leibniz Centre for European Economic Research

Ulrich Zierahn

ZEW – Leibniz Centre for European Economic Research - Labour Markets, Human Resources and Social Policy Department

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Abstract

We investigate minimum wage spillovers by exploiting the first-time introduction of a minimum wage within a quasi-experiment in a context with an extraordinary large bite: the German roofing industry. We find positive wage spillovers for medium-skilled workers with wages just above the minimum wage, but negative effects for high-skilled top earners in East Germany, where the bite was particularly pronounced. There, the minimum wage lowered both returns to skills and skill supply. We propose a theoretical model according to which negative spillovers occur whenever a negative scale effect dominates a positive substitution effect and provide empirical support for our theory.

Keywords: minimum wages, wage effects, spillover effects, wage restraints, returns to skills, unconditional quantile regression, scale effect, substitution effect, skill supply

JEL Classification: J31, J38, J24, C21, J23

Suggested Citation

Gregory, Terry and Zierahn, Ulrich, When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply. IZA Discussion Paper No. 13633, Available at SSRN: https://ssrn.com/abstract=3682947

Terry Gregory (Contact Author)

IZA Institute of Labor Economics ( email )

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

HOME PAGE: http://https://sites.google.com/view/terrygregory

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
Mannheim, 68161
Germany

HOME PAGE: http://https://sites.google.com/view/terrygregory

Ulrich Zierahn

ZEW – Leibniz Centre for European Economic Research - Labour Markets, Human Resources and Social Policy Department ( email )

P.O.Box 10 34 43
D-68034
Germany

HOME PAGE: http://www.zew.de/MA601-1

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