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Minimum wages and competition: the case of the German roofing sector
Kraft, Kornelius
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Rammer, Christian
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Gottschalk, Sandra
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URL:
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https://ub-madoc.bib.uni-mannheim.de/32901
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URN:
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urn:nbn:de:bsz:180-madoc-329011
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Document Type:
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Working paper
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Year of publication:
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2012
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The title of a journal, publication series:
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ZEW Discussion Papers
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Volume:
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12-083
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Place of publication:
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Mannheim
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Publication language:
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English
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Institution:
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Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
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MADOC publication series:
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Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
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Subject:
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330 Economics
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Classification:
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JEL:
D04 , J21 , J38 , L11 , L22 , L74,
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Subject headings (SWD):
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Deutschland , neue Bundesländer , alte Bundesländer , Mindestlohn , Wirkungsanalyse , Holzhandwerk , Wettbewerb , Markteintritt , Marktaustritt , Rentabilität , Selbstständige
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Keywords (English):
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Minimum wage , competition , firm performance , labour market policy , evasion strategy , sole traders
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Abstract:
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This paper analyses the effects of minimum wages on competition in the German
roofing sector. The case is particularly interesting since this sector is faced with a
uniform minimum wage despite significant regional disparities in productivity and
wages. As a control industry we take the plumbing sector, which shows a similar
market structure and demand trend but is not subject to a minimum wage. Employing
a comprehensive firm panel data and using a difference-in-difference approach,
we estimate the impacts of minimum wages on market entries and exits
and firms’ profitability. We find significant effects for East Germany which point
to a substantial shift in industry structure. Minimum wages decreased both market
entries and exits for roofing firms while they increased entries of sole traders. A
decreasing number of non-sole traders lowered competition for this group of firms
and helped them to increase profitability. The increasing share of sole traders may
indicate some type of evasion strategy in eastern Germany, particularly since
wages for skilled roofers declined towards the minimum wage. In the western part
of the country minimum wages had no impact on competition.
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