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Vortrag
Estimating the Employment Effects of a Minimum Wage from a Cross-Sectional Wage Distribution: A Semi-Parametric Approach

Kai-Uwe Müller


67th European Meeting of the Econometric Society ESEM
Göteborg, Schweden, 26.08.2013 - 30.08.2013


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Abstract:
On the basis of a structural labor demand model employment effects of a minimum wage are estimated from a single cross-sectional wage distribution. The main contribution of the paper is to relax restrictive functional form assumptions of earlier papers by adopting semi-parametric censored quantile regressions to this framework. We apply the model to the sectoral minimum wage in the German construction sector. It can be shown that the semi-parametric estimates are within a plausible range: employment levels would be 4-5% higher without the minimum wage in the East where the minimum bit quite hard. The effect for West Germany is markedly smaller as the minimum was hardly binding. Our semi-parametrically estimated structural approach can be a useful alternative to established panel data or difference-in-difference models when the necessary institutional variation or data base is either not available, or the necessary assumptions are problematic.

Abstract

On the basis of a structural labor demand model employment effects of a minimum wage are estimated from a single cross-sectional wage distribution. The main contribution of the paper is to relax restrictive functional form assumptions of earlier papers by adopting semi-parametric censored quantile regressions to this framework. We apply the model to the sectoral minimum wage in the German construction sector. It can be shown that the semi-parametric estimates are within a plausible range: employment levels would be 4-5% higher without the minimum wage in the East where the minimum bit quite hard. The effect for West Germany is markedly smaller as the minimum was hardly binding. Our semi-parametrically estimated structural approach can be a useful alternative to established panel data or difference-in-difference models when the necessary institutional variation or data base is either not available, or the necessary assumptions are problematic.

Kai-Uwe Müller

Leiter der FIS Nachwuchsgruppe Zeitpolitik in der Abteilung Staat



JEL-Classification: J23;J31;J38
Keywords: Minimum wage, wage distribution, employment effects, labor demand, censored quantile regression
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