Marion König

Impacts of minimum wages: a microdata analysis for the German construction sector

Purpose - In 1997 minimum wages were introduced in the West and East German construction sector. The purpose of this paper is to analyze their impact on wage growth and employment retention probability of affected workers. Design/methodology/approach - Following a difference-in-differences approach the paper proposes a method to identify the effects of this quasi-experiment despite the lack of information on working hours in the large panel microdata. The method determines the size of the treatment and control group by the maximum likelihood criterion. Findings - All results show positive wage growth effects of the minimum wage regulation in both parts of the country. When it comes to employment effects, the results clearly differ between the two parts of the country. The employment effects are negative for East Germany and positive for West Germany, although the latter are not always statistically significant. Research limitations/implications - Although there is a limit to the simple transferability of the results for the construction sector to other industries, the study provides some useful insights for this country concerning reactions to the minimum wage. This is the first paper analyzing the effect of minimum wages in Germany using microeconometric methods. Practical implications - As the minimum wage in the East German construction sector was much higher in relation to the median wage than in West Germany, a tentative conclusion of the different employment results might be that the trade-off between increasing wages for low-paid workers and the danger of job losses does not exist in this case if minimum wages are moderate. Originality/value - This paper provides valuable information on the impact of wage growth and employment retention probability in Germany.

Lost in Transition? – Minimum Wage Effects on German Construction Workers

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. In doing so, we focus on accessions and separations, as well as the underlying labour market flows, at the establishment level. The fact that minimum wages in Germany are sector-specific enables us to use other industries as control groups within a difference-in-differences framework. We find that both accessions and separations rise in East Germany as a result of the minimum wage introduction. The evidence on detailed worker flows suggests that this is mainly due to increased recalls. Furthermore, the minimum wage introduction lowered job-to-job transitions in East Germany, which can be explained by a more compressed wage distribution making on-the-job search less worthwhile. No clear effects on labour market dynamics in West Germany arise.