High-impact minimum wages and heterogeneous regions
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High-impact minimum wages and heterogeneous regions Philipp vom Berge1 · Hanna Frings2,3 Received: 2 November 2017 / Accepted: 2 March 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract We estimate the effects of the introduction of and subsequent increases in a substantial minimum wage in Germany’s main construction industry on wage and employment growth rates. Using a regional dataset constructed from individual employment histories, we exploit the spatial dimension and border discontinuities of the regional data to account for spillovers between districts and unobserved heterogeneity at the local level. The results indicate that the minimum wage increased the wage growth rate for East Germany but did not have a significant impact on the West German equivalent. The estimated effect on the employment growth rate reveals a contraction in the east of about 1.2 percentage points for a one-standard-deviation increase in the minimumwage bite, amounting to roughly one quarter of the overall decline in the growth rate. We observe no change for the West. Keywords Construction sector · Germany · Minimum wage · Spatial heterogeneity · Spatial panel data JEL Classification J31 · J38 This paper is based on an earlier version published as Ruhr Economic Paper No. 408. The earlier draft was co-authored by Alfredo R. Paloyo, and the project benefited substantially from his insights and collaboration. We are grateful to Ronald Bachmann, Thomas K. Bauer, Daniel Baumgarten, Joachim Möller, Marion Penninger, Achim Schmillen, Matthias Umkehrer, Till von Wachter, several anonymous referees, and participants of the 52nd Annual Congress of the European Regional Science Association, the 6th Doctoral Conference of the Ruhr Graduate School in Economics, the 27th Annual Conference of the European Society for Population Economics, the 25th Annual Conference of the European Association of labour Economists, the 3rd SEEK Conference, the 47th Annual Conference of the Canadian Economics Association, the 18th Spring Meeting of Young Economists, the 5th International Doctoral Meeting of Montpellier, Verein für Socialpolitik 2013, the Econometric Society Australasia Meeting 2013, and seminars at the University of Utrecht, the Berliner Netzwerk Arbeitsmarktforschung, the RWI, and the Australian National University for helpful comments. All remaining errors are our own. Electronic supplementary material The online version of this article (https://doi.org/10.1007/s00181019-01661-0) contains supplementary material, which is available to authorized users.
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Hanna Frings [email protected]
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P. vom Berge, H. Frings
1 Introduction The last 25 years have seen an enormous improvement in empirical minimum-wage research, with the major methodological progress driven by a literature focussing on the USA and UK (Card and Krueger 1994; Dube et al. 2010; Dolton et al. 2012; Neumark et al. 2014; Allegretto et al. 2017). While the discussion on the precise
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