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The Short-Term Distributional Effects of the German Minimum Wage Reform

Diskussionspapiere extern

Marco Caliendo, Alexandra Fedorets, Malte Preuss, Carsten Schröder, Linda Wittbrodt

Berlin: DIW Berlin, 2017, 45 S.
(Discussion Paper Series / Forschungsinstitut zur Zukunft der Arbeit ; 11246)

Abstract

This study quantifies the short-term distributional effects of the new statutory minimum wage in Germany. Using detailed survey data (German Socio-Economic Panel), we assess changes in the distributions of hourly wages, contractual and actual working hours, and monthly earnings. Our descriptive results indicate growth at the bottom of the hourly wage distribution in the post-reform year, but also considerable noncompliance among eligible employees. In a second step, we employ a difference-in-differences analysis and exploit regional variation in the "bite" of the intervention, measured by the share of employees in a geographical region with wages below the minimum wage prior to the reform. We document the reform's positive effect at the bottom of the wage distribution. However, we find a negative effect of the reform on contractual hours worked, which explains why there is no effect on monthly earnings. Given that actual hours worked decrease less than contractual hours, our evidence suggests an increase in unpaid overtime.

Carsten Schröder

Board of Directors SOEP and Division Head Applied Panel Analysis in the German Socio-Economic Panel study Department



JEL-Classification: J31;J38;J22
Keywords: minimum wage, wage distribution, hourly wages, inequality
Externer Link:
ftp.iza.org/dp11246.pdf

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