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Monopsony in the labor market: the employment effects of the german minimum wage reform


Silvio Ceron



In 2015, Germany introduced a statutory hourly minimum wage that was not only universally binding but also set at a relatively high level. By focusing on the short-run effects of the German Minimum Wage Reform, I estimate its impact on employment. Using a difference-in-differences framework, I exploit variation in the regional treatment intensity, assuming that the stronger a minimum wage ‘bites’ into the regional wage distribution, the stronger the regional labor market, and thus employment, will be affected. The data source I use is the German Socio-Economic Panel (SOEP). After verifying the absence of anticipation effects and testing the common trend assumption in wages and employment size, I estimate non significative coefficients of the interaction terms between the regional bite in 2014 and years from 2012 to 2017. However, these results allow me to assess that labor markets could be characterized by monopsonistic aspects, which make unclear the employment effects of the introduction of a wage floor.