The Economic Effects of a Federal Minimum Wage in Germany: Empirical Studies on Its Consequences for Earnings, Income, and Employment ; Dissertation

Abstract

The dissertation fits into this empirical literature on the economic effects of a federal minimum wage in Germany. The research questions are related to the arguments and issues that have been brought forward in the policy debate and that have been addressed in the economic literature on minimum wages: How would a federal minimum wage affect the distribution of gross wages? Which individuals would be particularly affected by its introduction? Does a general minimum wage induce a significant change in the distribution of disposable household incomes when the economic agents do not adjust their behavior? Will it reduce poverty and/or overall income inequality? How would a minimum wage affect the behavior of economic agents? Do labor supply and demand adapt after the introduction of a minimum wage? What will be the likely effects on total employment? Where does the large variation in the results of published simulation studies on the employment effects of a minimum wage come from? Has the introduction of the sectoral minimum wage in the main construction trade in 1997 had an impact on employment? Which consequences has the minimum for prices of consumption goods? How will households react, do they adapt their consumption behavior? Do behavioral changes at different margins modify the distributional effects of the minimum wage on disposable incomes? Is the minimum wage an effective instrument for income redistribution? How effective would different types of wage subsidies be when a statutory minimum is in place? We tackle these questions empirically using various micro-datasets based on survey and administrative information. The dissertation employs microsimulation and micro-econometric techniques that are grounded in structural models of the labor market. The dissertation aims to close some of the gaps in the empirical literature for Germany. The first focal point (chapters 1 and 2) is a comprehensive distributional analysis of the effects a federal minimum will have for labor earnings and disposable household incomes. The distributional analysis of net income, the interaction of the minimum wage with the tax and benefit system and the integration of behavioral adjustments at different margins has been largely neglected in the debate. The findings put a number of arguments for the minimum wage into perspective. The depth of the empirical analysis at the micro level and some methodological extensions contribute to the distributional minimum wage literature in general. The second emphasis of the thesis (chapters 3 through 5) is to complement the existing evaluation literature on the employment effects of minimum wages with structural approaches. These are particularly helpful when information on already implemented sectoral minimum wages is limited (data restrictions, lack of control groups) and the assumptions of the reduced-form evaluation methods are challenged (chapter 4). Moreover, structural models enable ex ante evaluations of the federal minimum wage in combination with other policies (chapter 5).