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

Terry Gregory () and Ulrich Zierahn

No 13633, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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
Date: 2020-08
New Economics Papers: this item is included in nep-lma
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Working Paper: When the Minimum Wage Really Bites Hard: Impact on Top Earners and Skill Supply (2020) Downloads
Working Paper: When the minimum wage really bites hard: Impact on top earners and skill supply (2020) Downloads
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