Employment and Reallocation Effects of Higher Minimum Wages

Arbeitspapier

This paper studies the employment and reallocation effects of minimum wages in Germany in a search-and-matching model with endogenous job search effort and vacancy posting, multiple employment levels, a progressive tax-transfer system, and worker and firm heterogeneity. I find that minimum wages up to 70% of the median wage significantly increase productivity, hours worked and output without reducing employment. In frictional labor markets, however, reallocation takes time whenever the minimum wage cuts deep into the wage distribution. I show that gradually implementing a high minimum wage is necessary to avoid elevated unemployment rates during the transition.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10412

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Aggregate Factor Income Distribution ; Incomes Policy; Price Policy ; Demand and Supply of Labor: General ; Wage Level and Structure; Wage Differentials ; Wages, Compensation, and Labor Costs: Public Policy
• Subject: minimum wage ; reallocation ; employment ; job search ; worker and firm heterogeneity ; hours worked ; equilibrium search-and-matching model ; transition dynamics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Drechsel-Grau, Moritz
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/279161
• Last update: 10.03.2025, 11:44 AM CET