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Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional

Authors
  • Braun, Helge1
  • Döhrn, Roland2
  • Krause, Michael3
  • Micheli, Martin2
  • Schmidt, Torsten4
  • 1 RGS Econ and RWI – Leibniz-Institute for Economic Research, Hohenzollernstr. 1-3, 45128 , (Germany)
  • 2 RWI – Leibniz-Institute for Economic Research, Hohenzollernstr. 1-3, 45128 , (Germany)
  • 3 University of Cologne, Center for Macroeconomic Research (CMR), Albertus-Magnus-Platz, 50923 , (Germany)
  • 4 RWI – Leibniz-Institut for Economic Research, Hohenzollernstr. 1-3, 45128 , (Germany)
Type
Published Article
Journal
Jahrbücher für Nationalökonomie und Statistik
Publisher
De Gruyter
Publication Date
Sep 17, 2019
Volume
240
Issue
2-3
Pages
351–386
Identifiers
DOI: 10.1515/jbnst-2018-0080
Source
De Gruyter
Keywords
License
Green

Abstract

This paper analyzes the introduction of the German minimum wage in 2015 in a structural model geared to quantitatively assess its long-run economic effects. We first employ a simple neoclassic model where wages equal their marginal product, then extend this model to two sector economy, and finally introduce search and matching frictions. Even though all model variants remain highly stylized, they yield quantitative insights on the importance of different mechanisms and channels through which minimum wages affect outcomes in the long run. In this framework, the minimum wage has a strong negative effect on employment. When sectors are differently affected by the minimum wage, sectoral relative price changes play an important quantitative role. Other labor market policies and institutions are important for the transmission of minimum wage policy on labor market market outcomes.

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