@article{26a992e6a75e41e8a5918c51d6853dfb,
title = "When the Minimum Wage Really Bites Hard: The Negative Spillover Effect on High-Skilled Workers",
abstract = "Minimum wage levels are rising around the globe. To shed more light on the possible unintended side effects of higher wage floors, we study the impact of a minimum wage introduction on wages and employment in a quasi-experimental setting where the minimum wage is set extraordinarily high during an economic downturn. We identify treatment effects along different wage and skill groups and find positive wage and employment spillover effects for medium-skilled workers with salaries just above the minimum wage. More striking, we find negative wage and employment effects for high-skilled workers who are further up the wage distribution, followed by reduced returns to skills and industry skill supply. We explain these adjustments with a substitution-scale model that predicts negative spillover effects whenever labor-labor substitutions toward high-skilled workers are overcompensated by an overall decline in industry employment. Even though we focus on a specialized industry, we lay out the general conditions under which such unfavorable adjustments may occur in other contexts.",
keywords = "Labor-labor substitution, Minimum wages, Returns to skills, Scale effect, Skill supply, Spillover effects, Substitution effect, Unconditional quantile regression, Wage effects",
author = "Terry Gregory and Ulrich Zierahn",
note = "Funding Information: We thank Jeffrey Clemens, three anonymous referees, Melanie Arntz, Stephan Dlugosz, Bernd Fitzenberger, Heinrich K{\"o}gel, Michael Maier, Joachim M{\"o}ller, David Neumark, and Anna Salomons as well as participants of the seminars at Utrecht University, ZEW Mannheim, University of Regensburg, DIW-Conference on the “Evaluation of Minimum Wages,” and the annual congresses of the Society of Labor Economists (SOLE), European Economic Association (EEA), and German Economic Association (VfS) for helpful comments and suggestions. We further thank the Central Pay Office (LAK) of the roofing industry for providing us with hourly wage data. Our paper was partly financed by the ZEW Sponsors{\textquoteright} Association for Science and Practice, and by the state of Baden-W{\"u}rttemberg within the SEEK program, and it profited from a preceding evaluation of minimum wage effects in the German roofing industry that was financed by the German Federal Ministry of Labor and Social Affairs (BMAS). The results and conclusions derived in this study do not necessarily reflect the views of the BMAS. This paper builds on an earlier version, “When the Minimum Wage Bites Back: Quantile Treatment Effects of a Sectoral Minimum Wage in Germany,” ZEW Discussion Paper No. 14-133. Publisher Copyright: {\textcopyright} 2021 The Author(s)",
year = "2022",
month = feb,
doi = "10.1016/j.jpubeco.2021.104582",
language = "English",
volume = "206",
pages = "1--32",
journal = "Journal of Public Economics",
issn = "0047-2727",
publisher = "Elsevier",
}