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Great Expectations: Reservation Wages and the Minimum Wage Reform

Alexandra Fedorets (), Alexey Filatov and Cortnie Shupe

No 968, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

Abstract: We use the German Socio-Economic Panel to show that introducing a high-impact statutory minimum wage causes an increase in reservation wages of approximately 4 percent at the low end of the distribution. The shifts in reservation wages and observed wages due to the minimum wage reform are comparable in their magnitude. Additional results show that German citizens adjust their reservation wages more than immigrants. Moreover, suggestive evidence points to a compensation mechanism in which immigrants trade wage growth against job security.

Keywords: Minimum wage; reservation wage; labor supply (search for similar items in EconPapers)
JEL-codes: J22 J3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur
Date: 2018
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