Employment and Reallocation Effects of Higher Minimum Wages

Moritz Drechsel-Grau

No 10412, CESifo Working Paper Series from CESifo

Abstract: This paper studies the employment and reallocation effects of minimum wages in Germany in a search-and-matching model with endogenous job search effort and vacancy posting, multiple employment levels, a progressive tax-transfer system, and worker and firm heterogeneity. I find that minimum wages up to 70% of the median wage significantly increase productivity, hours worked and output without reducing employment. In frictional labor markets, however, reallocation takes time whenever the minimum wage cuts deep into the wage distribution. I show that gradually implementing a high minimum wage is necessary to avoid elevated unemployment rates during the transition.

Keywords: minimum wage; reallocation; employment; job search; worker and firm heterogeneity; hours worked; equilibrium search-and-matching model; transition dynamics (search for similar items in EconPapers)
JEL-codes: E24 E25 E64 J20 J31 J38 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-eur, nep-inv and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10412

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