Employment Adjustments Following Rises and Reductions in Minimum Wages: New Insights from a Survey Experiment

34 Pages Posted: 28 Aug 2018

See all articles by Mario Bossler

Mario Bossler

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Michael Oberfichtner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Claus Schnabel

University of Erlangen-Nuremberg; IZA Institute of Labor Economics

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Abstract

The effects of large minimum wage increases, like those planned in the UK and in some US states, are still unknown. We conduct a survey experiment that randomly assigns increases or decreases in minimum wages to about 6,000 establishments in Germany and asks the personnel managers about their expectations concerning employment adjustments. We find that employment reacts asymmetrically to positive and negative changes in minimum wages. The larger the increase in the minimum wage is, the larger the expected reduction in employment. Employment adjustments are more pronounced in those industries and plants which are more strongly affected by the current minimum wage and in those plants that have neither collective agreements nor a works council. In contrast, employment is not found to increase if the minimum wage is reduced by about 10 percent. This mainly reflects that plants with works councils and collective agreements would not cut wages.

Keywords: minimum wage, wage cuts, establishment survey, Germany

JEL Classification: J31, J23, D22

Suggested Citation

Bossler, Mario and Oberfichtner, Michael and Schnabel, Claus, Employment Adjustments Following Rises and Reductions in Minimum Wages: New Insights from a Survey Experiment. IZA Discussion Paper No. 11747, Available at SSRN: https://ssrn.com/abstract=3238572

Mario Bossler (Contact Author)

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Michael Oberfichtner

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE 91054
Germany

Claus Schnabel

University of Erlangen-Nuremberg ( email )

Institut für Wirtschaftsforschung
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D-90403 Nuernberg
Germany
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