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Minimum Wage

Selected e-articles

Abstract: Until recently, the idea of a European minimum wage (EMW) policy had never taken concrete shape, due to the heterogeneity of national wage‐setting and collective bargaining institutions, uncertain EU competence on the matter, and widespread scepticism amongst political actors. In 2022, however, the EU adopted a directive on adequate minimum wages. How did this make it to the EU agenda, despite the many political, territorial and institutional tensions? What coalitions supported and opposed it? Based on a reconstruction of the policy process substantiated by an analysis of news media data and 14 interviews, this article investigates the multi‐level politics of the EMW. It shows that, despite enduring ‘euro‐social scepticism’ in northern Europe, the emergence of pro‐minimum wage coalitions in key member states and the increase of party‐competition dynamics at the EU level were crucial in overcoming the lines of conflict that had long hindered EU initiatives on minimum wage co‐ordination.

Abstract: This paper studies how minimum wages affect the wage distribution if firms face financial constraints. Using German employer-employee data and firm balance sheets, we document that the within-firm wage dispersion decreases more with higher minimum wages when firms are financially constrained. We introduce financial frictions into a search and matching labor market model with stochastic job matching, imperfect information, and endogenous effort. In line with the empirical literature, the model predicts that a higher minimum wage reduces hirings and separations. Firms become more selective such that their employment and wage dispersion fall. If effort increases strongly, firms may increase employment at the expense of higher wage dispersion. Financially constrained firms are more selective and reward effort less. As a result, within-firm wage dispersion and employment in these firms fall more with the minimum wage.

Abstract: This paper presents a general equilibrium model incorporating heterogeneous firms and a perfectly competitive labour market to explore the desirability of minimum wages. We demonstrate that a low minjmum wage could enhance social welfare, assuming equal weighting for all individuals. This occurs because the introduction of minimum wages has the potential to mitigate the goods market distortions arising from imperfect competition, firm heterogeneity and free entry. Additionally, we illustrate that the optimal minimum wage is positively associated with the preference intensity for differentiated products relative to the numeraire and population size, while it negatively correlates with the degree of love for variety, entry cost, and upper bound of marginal labour requirements.

Abstract: The proposal of a European minimum wage directive by the European Commission was supposed to improve working conditions. This article asks why such an initiative created a challenge to the unity of unions, but not of employers’ associations at transnational level. The authors provide a network analysis of the communication structure of social partners. Applying Scharpf’s concepts of positive and negative integration and Hirschman’s typology of exit, voice and loyalty, the authors use qualitative methods to show how employers stayed loyal and united towards negative integration, while different voices arose within the European Trade Union Confederation (ETUC) leading to the temporary ‘exit’ of the Swedish Trade Union Confederation.

Abstract: The EU Directive 2022/2041 on adequate minimum wages has been welcomed by many stakeholders, but Sweden (together with Denmark), with its historically good track record regarding labour rights, is opposing it on both political and legal grounds. The Directive, the Swedish Government argues, will not fulfil its goals, and concerns, in any instance, matters that are excluded from the competence of the EU. This article describes and analyses the implementation measures in a system whose wage-setting mechanism – at least according to its own opinion – needs no support, and in which legal and political objections have been raised against the Directive.

Abstract: In recent decades, disappointing poverty trends and welfare state limitations in many European countries – including constraints on minimum income benefits – have paved the way for a larger role of the third sector. An interesting but controversial form of third-sector in-kind support is food aid provision. In Europe, food aid is, so far, a non-rights-based practice displaying worrisome discretionary and stigmatizing characteristics. Yet, the phenomenon of food aid in Europe has spread, professionalized, and penetrated the institutions of the welfare state. This raises the question if, how and to what extent food aid plays a role in bypassing structural constraints on minimum income protection. This article applies an exploratory case study approach to estimate the monetary value of food aid in relation to statutory minimum incomes in four EU-countries. We use cross-nationally comparable food reference budgets to price food aid packages in Belgium, Finland, Hungary and Spain. The results show that food aid, although not sufficient to close the at-risk-of-poverty gap, is non-trivial for some European households. In Spain and Belgium food aid packages can reach up to €100 a month (expressing 7% to 11% of respective minimum income benefit levels). Importantly, we perceive (formalized) cooperation and interaction between local welfare agencies and food charities in all countries, suggesting that welfare state actors use non-rights-based food aid for filling gaps in the social safety net. The large between- and within-country variation of the monetary values of food aid packages points, however, to food aid as a problematic discretionary practice.

Abstract: The authors estimate the effects of an increase in the youth minimum wage in the Netherlands on low-paid workers’ employment and earnings, using a difference-in-differences approach with detailed administrative data. Findings show that the increase does not have a negative effect on the number of jobs or hours worked, hence raising overall earnings for affected workers. Further, the minimum wage increase has substantial spillover effects, accounting for close to 70% of the average wage increase experienced by workers. While employment grows in fixed-term and temporary help agency contracts, the authors do not find evidence of declines in employment in other types of work arrangements, nor of labor-labor substitution. Labor market outcomes evolve most favorably for full-time incumbent workers who are not enrolled in education and are thus less likely to be transient occupants of minimum wage jobs.

Abstract: We use geographically precise longitudinal employment data documenting worker job-to-job mobility to study policy spillovers in the context of three local minimum wage increases. Estimated spillover impacts on wages and hours are statistically significant, geographically diffuse, and sufficient to create concern regarding interpretation of results even using not-immediately-adjacent regions as controls. Spillover effects appear less concerning with smaller interventions or those adopted in smaller jurisdictions. The boundary discontinuity method of causal inference may yield misleading results if a policy’s impacts do not stop at the border of the implementing jurisdiction. We study policy spillovers in the context of three local minimum wage increases. Estimated spillover impacts on wages and hours are statistically significant. Spillovers appear less concerning with small interventions in small jurisdictions. Boundary discontinuity method of causal inference may yield misleading results.

Abstract: In October 2022, the European Union adopted a directive on adequate minimum wages in the European Union (AMWD). This directive has sparked considerable controversy. While employers uniformly oppose the AMWD, unions are divided. In many EU countries, unions support the AMWD, while in Denmark and Sweden, they oppose it. This article aims to answer the question: Why do unions in some member states support the AMWD, while unions in other countries oppose it? Drawing on 27 semi-structured interviews with union representatives from 13 EU countries, the article presents a typology of union positions towards AMWD consisting of three types: domestically-oriented opposition, domestically-oriented support, and externally-oriented support. The article proposes an explanation for these three different types that is based on two variables: bargaining coverage, and the role of state institutions in protecting it.

Abstract: This paper studies the price and employment responses of firms to the introduction of a nationwide minimum wage in Germany. Widely throughout the economy, affected firms responded by rapidly and frequently increasing prices without cutting employment. These decisions are strongly interrelated: Firms that increased prices relatively more often also showed a less negative employment response. The relative importance of both margins is associated with product market competition and the specific economic situation firms face when being treated. The empirically strong interdependence suggests that the employment effects of minimum wages may not be properly understood when abstracting from other adjustment margins. Study firms’ price and employment response to introduction of German minimum wage. Firms raised prices more frequently instead of cutting jobs. Firms’ adjustments along these important margins tend to be interrelated. Relative importance tied to competition and economic conditions upon treatment. Employment effects may not be fully understood when abstracting from other margins.

Abstract: We examine the employment effects of the 2019 minimum wage increase in Spain on individual probabilities of losing employment status (extensive margin) and lowering work intensity (intensive margin). To do so, we use variation of workers’ exposure to the reform by comparing monthly employment transitions into unemployment and reductions in number of working hours between employees earning less than the minimum wage (treatment group) and those earning more and that should therefore be unaffected by the reform (control group). We find that the new minimum wage significantly increased the probability of experiencing unemployment (1.7 percentage points) and a reduction in work intensity (0.9 percentage points) for treated workers after one year. Our results suggest substantial heterogeneity by age, prior work intensity, economic sector and geographical region of employees affected by the reform.

Abstract: We structurally estimate an equilibrium search model using German administrative data and use the model for counterfactual analyses of a uniform minimum wage. The model with worker and firm heterogeneity does not restrict the sign of employment effects a priori; it allows for different job offer arrival rates for the employed and the unemployed and lets firms optimally choose their recruiting intensity. We find that unemployment is a non-monotonic function of the minimum wage level. Effects differ strongly by labor market segment defined by region, skill, and permanent worker ability. Structural estimation of an equilibrium search model enables counterfactual minimum wage analyses. The model includes firms’ recruitment intensity and allows for flexible offer arrival rates. Unemployment is non-monotonic in the minimum wage level. Effects differ by region, skill, and ability.

Abstract: This study examines long-term effects of a large minimum wage increase in Slovenia, covering the universe of employed and unemployed workers. By distinguishing subminimum and super-minimum workers, we find large, persistent dis-employment effects for the subminimum group whose productivity fell below the rising minimum wage, both due to lower probability of remaining employed and of finding a job if non-employed. The shock to firm wage bills caused by the minimum wage creates a substitution toward workers whose marginal revenue products are slightly above the minimum wage, but the most skilled are complements with the subminimum workers in their firm.  In 2010, the minimum wage in Slovenia increased by 22.9%. The increase had a large and persistent dis-employment effect on low-skill workers. The effect occurred due to lower probability of remaining employed and of finding job. The shock caused firms to substitute from subminimum toward super-minimum workers.

Abstract: Der Mindestlohn hat bei Frauen seit seiner Einführung zu stärkeren Anstiegen der durchschnittlichen Stundenlöhne und monatlichen Verdienste geführt als bei Männern. Die Auswirkungen des Mindestlohns auf die Stundenlöhne der vom Mindestlohn betroffenen Frauen und Männern fielen im Durchschnitt ähnlich hoch aus. Frauen sind jedoch häufiger im Mindestlohnbereich beschäftigt als Männer und profitieren somit häufiger von diesem. Ergebnisse zu geschlechterspezifischen Reduzierungen der Arbeitszeit aufgrund des Mindestlohns fallen unterschiedlich aus. Weder bei Frauen, noch bei Männern kam es zu erheblichen Beschäftigungseffekten des Mindestlohns. Der Mindestlohn trägt somit zur Reduzierung der Entgeltungleichheit nach Geschlecht bei.

Résumé: Dans un contexte économique contemporain de baisse des salaires mensuels réels de base en raison de l'inflation, le salaire minimum interprofessionnel de croissance fait figure d'instrument secondaire de la politique salariale française visant à permettre aux travailleurs de faire face à la hausse du coût de la vie. L'entrée dans le paysage européen de la directive relative à des salaires minimaux adéquats peut dès lors apparaître comme une opportunité pour réévaluer la ou les fonction(s) remplie(s) par l'existence d'un salaire minimum étatique. Faisant certes la promotion de la négociation collective en adoptant une approche essentiellement procédurale quant aux règles de détermination des salaires minimaux nationaux, la directive européenne du 19 octobre 2022 esquisse néanmoins les traits de ce que peut être un salaire minimum « adéquat ». L'indétermination des fonctions poursuivies et la multiplicité des critères visant à en garantir l'évaluation fragilisent cependant le dispositif au regard de l'objectif de lutte contre la pauvreté au travail.

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