Minimum wages and competition: The case of the German roofing sector

Kornelius Kraft, Christian Rammer and Sandra Gottschalk

No 12-083, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper analyses the effects of minimum wages on competition in the German roofing sector. The case is particularly interesting since this sector is faced with a uniform minimum wage despite significant regional disparities in productivity and wages. As a control industry we take the plumbing sector, which shows a similar market structure and demand trend but is not subject to a minimum wage. Employing a comprehensive firm panel data and using a difference-in-difference approach, we estimate the impacts of minimum wages on market entries and exits and firms' profitability. We find significant effects for East Germany which point to a substantial shift in industry structure. Minimum wages decreased both market entries and exits for roofing firms while they increased entries of sole traders. A decreasing number of non-sole traders lowered competition for this group of firms and helped them to increase profitability. The increasing share of sole traders may indicate some type of evasion strategy in eastern Germany, particularly since wages for skilled roofers declined towards the minimum wage. In the western part of the country minimum wages had no impact on competition.

Keywords: Minimum Wage; Competition; Firm Performance; Labour Market Policy; Evasion Strategy; Sole Traders (search for similar items in EconPapers)
JEL-codes: D04 J21 J38 L11 L22 L74 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-com, nep-hme, nep-iue and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:12083

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