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The price and employment response of firms to the introduction of minimum wages

Sebastian Link

No 7575, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper studies the price and employment response of firms to the introduction of a nation-wide minimum wage in Germany. In line with previous studies, the estimated employment effect is only modestly negative and statistically insignificant. In contrast, affected firms increased prices much more frequently. The price effect is prevalent across different sectors of the economy including manufacturing and is thus not limited to low wage industries. I document that speed and degree of price pass-through were high and firms rolled over the lion’s share of the costs generated by the minimum wage to their customers. Consistent with the role of price pass-through, I find considerable heterogeneity in firms’ responses to the minimum wage depending on their own business expectations, product market competition, and local labor market conditions.

Keywords: price pass-through; heterogeneity in minimum wage effects; firm data; Germany (search for similar items in EconPapers)
JEL-codes: J38 J08 E31 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eur, nep-lma and nep-mac
Date: 2019
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