When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply
58 Pages Posted: 22 Sep 2020
Date Written: 2020
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
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