Minimum Wages and Contract Duration in Germany

David Margolis and Victor Saldarriaga
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Victor Saldarriaga: The University of Edinburgh

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Abstract: We assess the effect of the introduction of a minimum wage policy of 8.50 EUR/hour in Germany in January 2015 on the probability of transitioning from fixed-term to open-ended contracts. Utilizing administrative data from social security records, we compare ex-ante affected (i.e., those earning below the minimum wage) workers against unaffected ones during the pre-implementation period, and find a significant decline in the probability that ex-ante affected workers employed under fixed-term contracts transition to open-ended contracts as the ending month of their fixed-term contract approaches January 2015, when the minimum wage policy was enforced. We interpret our empirical results through the lens of a job search model where firms use fixed-term contracts as a probation phase to learn about the matchspecific productivity with a given worker. In this model, firms sign open-ended contracts based on a productivity threshold rule. A sufficiently high minimum wage can push this threshold up, thus reducing the probability at which workers transition from fixed-term to open-ended contracts.

Keywords: Minimum Wage; Employment Contracts; Job Duration; Turnover (search for similar items in EconPapers)
Date: 2023-11
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04289291v1
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Working Paper: Minimum Wages and Contract Duration in Germany (2023)
Working Paper: Minimum Wages and Contract Duration in Germany (2023)
Working Paper: Minimum Wages and Contract Duration in Germany (2023)
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