When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply
Terry Gregory () and
No 13633, IZA Discussion Papers from Institute of Labor Economics (IZA)
This paper provides new insights into how wages and employment adjust to a minimum wage policy along different wage and skill groups. For this, we exploit a quasi-experimental setting in the 1990s, where a German industry introduced a minimum wage at an extraordinary high level during an economic downturn with falling revenues. We find positive wage spillovers to medium-skilled workers with wages just above the minimum wage. More striking, we also find negative wage effects for high-skilled workers situated higher up in the wage distribution, followed by reduced returns to skills and skill supply in the industry. We explain these adjustments, both theoretically and empirically, with a substitution-scale model that predicts negative spillovers whenever labour demand shifts from low- to more skilled workers (substitution effect) are overcompensated by an overall decline in labour demand (scale effect).
Keywords: scale effect; unconditional quantile regression; returns to skills; wage restraints; spillover effects; wage effects; minimum wages; substitution effect; skill supply (search for similar items in EconPapers)
JEL-codes: C21 J23 J24 J31 J38 (search for similar items in EconPapers)
Pages: 58 pages
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Working Paper: When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply (2020)
Working Paper: When the minimum wage really bites hard: Impact on top earners and skill supply (2020)
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