The Short-Run Employment Effects of the German Minimum Wage Reform

Abstract

We assess the short-term employment effects of the introduction of a national statutoryminimum wage in Germany in 2015. For this purpose, we exploit variation in the regionaltreatment intensity, assuming that the stronger a minimum wage “bites” into the regionalwage distribution, the stronger the regional labour market will be affected. In contrastto previous studies, we draw upon detailed individual wage data from the Structure ofEarnings Survey (SES) 2014 and combine it with administrative information on regionalemployment. Moreover, using the Socio-Economic Panel (SOEP), we are able to affirm theabsence of anticipation effects and verify the assumption of a common trend in wagesbefore the reform. Based on hourly wages, we compute two regional bite indicators – theshare of affected employees and the Kaitz index – for 141 regional labour markets. In orderto get a broader picture, we construct and compare a variety of these measures, including abite based on full-time workers only. All of these display a considerably strong correlation.Overall, we do not find a pronounced significant effect on regular (full- and part-time)employment in most specifications, although some estimations yield a small significantreduction amounting to 78,000 (roughly 0.3% of all regular jobs). The results concerningmarginal employment are more pronounced. We find evidence that mini-jobs droppedsubstantially from 2014 to 2015, making for a reduction of about 180,000 jobs (about2.4% of all mini-jobs). This result is robust to a variety of sensitivity tests.