Minimum Wages and Competition: The Case of the German Roofing Sector

47 Pages Posted: 22 Dec 2012

See all articles by Kornelius Kraft

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Christian Rammer

ZEW – Leibniz Centre for European Economic Research - Industrial Economics and International Management Research

Sandra Gottschalk

Center for European Economic Research (ZEW)

Date Written: 2012

Abstract

This paper analyses the effects of minimum wages on competition in the German roofing sector. The case is particularly interesting since this sector is faced with a uniform minimum wage despite significant regional disparities in productivity and wages. As a control industry we take the plumbing sector, which shows a similar market structure and demand trend but is not subject to a minimum wage. Employing a comprehensive firm panel data and using a difference-in-difference approach, we estimate the impacts of minimum wages on market entries and exits and firms’ profitability. We find significant effects for East Germany which point to a substantial shift in industry structure. Minimum wages decreased both market entries and exits for roofing firms while they increased entries of sole traders. A decreasing number of non-sole traders lowered competition for this group of firms and helped them to increase profitability. The increasing share of sole traders may indicate some type of evasion strategy in eastern Germany, particularly since wages for skilled roofers declined towards the minimum wage. In the western part of the country minimum wages had no impact on competition.

Keywords: Minimum Wage, Competition, Firm Performance, Labour Market Policy, Evasion Strategy, Sole Traders

JEL Classification: D04, J21, J38, L11, L22, L74

Suggested Citation

Kraft, Kornelius and Rammer, Christian and Gottschalk, Sandra, Minimum Wages and Competition: The Case of the German Roofing Sector (2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-083, Available at SSRN: https://ssrn.com/abstract=2192049 or http://dx.doi.org/10.2139/ssrn.2192049

Kornelius Kraft (Contact Author)

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

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

Christian Rammer

ZEW – Leibniz Centre for European Economic Research - Industrial Economics and International Management Research ( email )

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

Sandra Gottschalk

Center for European Economic Research (ZEW) ( email )

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

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