We investigate minimum wage spillovers by exploiting the first-time introduction of aminimum wage within a quasi-experiment in a context with an extraordinary large bite: theGerman roofing industry. We find positive wage spillovers for medium-skilled workers withwages just above the minimum wage, but negative effects for high-skilled top earners in EastGermany, where the bite was particularly pronounced. There, the minimum wage loweredboth returns to skills and skill supply. We propose a theoretical model according to whichnegative spillovers occur whenever a negative scale effect dominates a positive substitutioneffect and provide empirical support for our theory.
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