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When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply

Terry Gregory () and Ulrich Zierahn

No 8540, CESifo Working Paper Series from CESifo

Abstract: We investigate minimum wage spillovers by exploiting the first-time introduction of a minimum wage within a quasi-experiment in a context with an extraordinary large bite: the German roofing industry. We find positive wage spillovers for medium-skilled workers with wages just above the minimum wage, but negative effects for high-skilled top earners in East Germany, where the bite was particularly pronounced. There, the minimum wage lowered both returns to skills and skill supply. We propose a theoretical model according to which negative spillovers occur whenever a negative scale effect dominates a positive substitution effect and provide empirical support for our theory.

Keywords: minimum wages; wage effects; spillover effects; wage restraints; returns to skills; unconditional quantile regression; scale effect; substitution effect; skill supply (search for similar items in EconPapers)
JEL-codes: C21 J23 J24 J31 J38 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-lma
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